Sale of the centuries

An eclectic tour through 3,000 years of monetary history. Martin Sandbu reviews ‘Money: The Unauthorised Biography’, by Felix Martin

Money: The Unauthorised Biography, by Felix Martin, Bodley Head, RRP£20, 327 pages

What is money? Even those able to talk fluently about repo transactions, collateralised debt obligations and quantitative easing may struggle to provide an answer. For as Felix Martin explains in his engaging “unauthorised biography” of this slipperiest of subjects, money is to us what water is for fish – so central to our existence that understanding it requires some conceptual effort.

The first thing to appreciate is that there is more to money than coins and currency. Martin thinks a misconception of money’s nature – according to which it is simply the commodity used to carry out trans­actions and can therefore be treated just like any other market good – is at the root of policy makers’ neglect of bubbles and their poor handling of financial crises.

Money opens with two exotic illustrations of Martin’s point. The first is the Pacific island of Yap, whose currency consisted of fei, huge stone wheels up to 12 feet in diameter. They were hardly ever moved to facilitate transactions – much like modern electronic bank accounts, they were symbolic representations of value, and they could change owner without changing hands. (Indeed, one was lost at sea, without this for a moment jeopardising the owner’s wealth.) The second is Homeric poetry. The Iliad and Odyssey, Martin writes, are a “vivid and detailed description of the age immediately before the invention of money”.

Both examples serve to undermine one of the book’s main targets: the conventional view that money was invented to overcome the impracticality of barter. The subsistence economies of the Homeric epics have no money, but no barter either – goods are transacted through war loot, gift exchange or sacrificial sharing rituals. The Yap, for their part, show that money does not need to be physically exchanged for bartered goods to play a role in exchange.

For Martin, money is as simple – and as hard to pin down – as this. It consists of obligations disembedded from particular social relationships: creditworthy claims that are freely transferable to third parties. That goes most obviously for “legal tender”, or currency backed by a sovereign. But private money – IOUs, private clearing systems – will “work” to the extent that they satisfy these criteria. And as Martin shows, the history of money is a narrative of rulers’ struggle with private users and issuers of credit – above all, bankers. Indeed, the story of our current crisis is one of private credit breaking its bounds.

Martin has trained in Classics as well as economics, and his book is so replete with literary and historical examples that the story almost tells itself. He passes the test that Harvard’s Dani Rodrik recently proposed on his blog: “To become a true economist, you need to do all sorts of reading – from history, sociology and political science, among other disciplines – that you are never required to do as a graduate student”.

Yet there is little that is original in Martin’s definition of money as transferable credit rather than pieces of metal, or, indeed, in most of the book. That the barter story is false is a mainstream anthropological view. His account of the social and philosophical doubts about market society owes much to Albert Hirschman’s The Passions and the Interests (1977). This is not a criticism, for Money is a superb synthesis that deserves to be read on this basis alone. But it does mean that his analysis can seem limited to readers who know the subject.

Martin takes well-rehearsed problems of market society – the depersonalisation of human relations and the flattening of value to a single dimension – as being above all a problem of monetary society. Money, of course, plays an important part in these processes. But whether a market society can work is part of a deeper, and older, inquiry about whether self-interest is compatible with virtue, and not only in the commercial sphere. As scholars such as John Parrish have explained, this concerned thinkers during epochs that were much less comprehensively monetised than the ones Martin considers.

It is simplistic, for example, to suggest the economics profession did not see the crisis coming (which is true) because it held on to a theory that saw money as simply commodity currency. The real problem was not a failure to understand that money is credit; it was the false belief that demand and the supply of credit equilibrate in a stable, socially efficient fashion – from which it would follow that the amount of money or credit circulating was of little consequence.

But if Martin’s thesis occasionally falters, his narrative never does. As a lucid, colourful introduction to 3,000 years of monetary history, it is worth its weight in fei.

Martin Sandbu is the FT’s economics leader writer

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