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Paper Promises: Debt, Money, and the New World Order
Winner of the Spears Business Book of the Year Award
Longlisted for the Financial Times Goldman Sachs Business Book of the Year Award
In today's financial climate, we are all, naturally, obsessed by debt. In almost every aspect of our life we experience it - on our credit cards, mortgages, bank loans and student loans. But where has this debt come from? How does it work? What is any money really worth? And what promises do we need to believe to keep the whole system afloat?
In this fascinating look at money through the ages - including our own unstable future - award-winning financial journalist Philip Coggan examines the flawed structure of the global finance systems as they exist today, and asks, with deeper imbalances that the world is currently facing, what's actually at stake.
Longlisted for the Financial Times Goldman Sachs Business Book of the Year Award
In today's financial climate, we are all, naturally, obsessed by debt. In almost every aspect of our life we experience it - on our credit cards, mortgages, bank loans and student loans. But where has this debt come from? How does it work? What is any money really worth? And what promises do we need to believe to keep the whole system afloat?
In this fascinating look at money through the ages - including our own unstable future - award-winning financial journalist Philip Coggan examines the flawed structure of the global finance systems as they exist today, and asks, with deeper imbalances that the world is currently facing, what's actually at stake.
304 pages, Hardcover
First published December 1, 2011
69 people are currently reading
1201 people want to read
About the author
Philip Coggan
18 books28 followersPhilip Coggan is a British columnist and author of books on economics. He currently writes for The Economist. Previously, he worked for the Financial Times for 20 years.
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Displaying 1 - 30 of 49 reviews
January 27, 2012
On all British bank notes from £5 to £50 the words ‘I promise to pay the bearer on demand the sum of …’ still appear. In eighteen-century Europe an experiment with paper money was begun by John Law, a Scottish mathematician and gambler, who moved to France toward the end of the reign of Louis XIV. The monarchy of France was, at this time, verging on bankruptcy and, as the successor to the King was still only an infant, the duc d’Orléans held the reins. John Law suggested to him that the creation of a bank that could issue paper money in lieu of gold and silver was the best way to get France out of debt. The Banque Générale was created and the duc d’Orléans decreed all taxes could be paid using Law’s new paper money.
Unfortunately, Law held the view that ‘it did not matter that paper money was not backed by an equal amount of gold and silver’ and it was this belief that Coggan cites as the downfall to this early experiment: ‘Had the scheme been kept on a modest scale, with banknotes backed by gold and silver, French economic growth might indeed have been boosted over the long run.’ However, Law’s experiment did not diminish the eventual power of paper money, primarily because precious metals are easy to steal, rare and cumbersome to manoeuvre.
In order to keep their gold and silver safe people began to store their valuables in safes at goldsmiths where they would receive a receipt for their deposit. This receipt was effectively an early banknote and the reason why we see the words ‘I promise to pay the bearer on demand the sum of …’ on our modern day equivalents. The difference between the original receipts and today’s notes is that these days the bearer cannot go into a bank (or a goldsmith) and demand the requisite amount of gold in return for the paper money. This is because in the 1930s the global economy broke with the gold standard, so today most of the world’s currencies are no longer linked to the amount of gold any given country holds in its reserves. Instead most currencies are pegged to the US dollar and worth as much as the exchange rate claims it to be.
In Paper Money Phillip Coggan charts the journey of money from its direct links with gold to the present day climate of abstract money, exchanged at the press of a button. This book provides a valuable insight into the field of economics for those of us who have never studied in depth the ins and outs of such a complex system. The author succinctly charts the story of money and outlines, in layman’s terms, the reason why we find ourselves in the current financial crisis. The reader is taken step by step through the Depression of the 1930s, the breakdown of Bretton Woods, asset bubbles, the problem with sub-prime mortgages, all the way to the collapse of Lehman Brothers and the vast debts the world is now drowning in. As Nassim Nicholas Taleb states on the front cover, ‘This book stands way above anything written on the present economic crisis’, and furthermore it explains it all in a way that anyone with any interest in the subject can understand.
Unfortunately, Law held the view that ‘it did not matter that paper money was not backed by an equal amount of gold and silver’ and it was this belief that Coggan cites as the downfall to this early experiment: ‘Had the scheme been kept on a modest scale, with banknotes backed by gold and silver, French economic growth might indeed have been boosted over the long run.’ However, Law’s experiment did not diminish the eventual power of paper money, primarily because precious metals are easy to steal, rare and cumbersome to manoeuvre.
In order to keep their gold and silver safe people began to store their valuables in safes at goldsmiths where they would receive a receipt for their deposit. This receipt was effectively an early banknote and the reason why we see the words ‘I promise to pay the bearer on demand the sum of …’ on our modern day equivalents. The difference between the original receipts and today’s notes is that these days the bearer cannot go into a bank (or a goldsmith) and demand the requisite amount of gold in return for the paper money. This is because in the 1930s the global economy broke with the gold standard, so today most of the world’s currencies are no longer linked to the amount of gold any given country holds in its reserves. Instead most currencies are pegged to the US dollar and worth as much as the exchange rate claims it to be.
In Paper Money Phillip Coggan charts the journey of money from its direct links with gold to the present day climate of abstract money, exchanged at the press of a button. This book provides a valuable insight into the field of economics for those of us who have never studied in depth the ins and outs of such a complex system. The author succinctly charts the story of money and outlines, in layman’s terms, the reason why we find ourselves in the current financial crisis. The reader is taken step by step through the Depression of the 1930s, the breakdown of Bretton Woods, asset bubbles, the problem with sub-prime mortgages, all the way to the collapse of Lehman Brothers and the vast debts the world is now drowning in. As Nassim Nicholas Taleb states on the front cover, ‘This book stands way above anything written on the present economic crisis’, and furthermore it explains it all in a way that anyone with any interest in the subject can understand.
July 7, 2019
Philip Coggan has compiled a 400 page book with enough knowledge and analysis to make it feel like an 800 page book, without seeming at all like a long and demanding read.
Having read previous books in the financial and monetary sector, Paper Promises compares favorably in the sense that it is truly the best of all worlds.
The first part of the book is a financial and monetary history in every sense worthy of Niall Ferguson's Ascent of Money, coupled with a monetary analysis every bit as astute as the works of Barry Eichengreen, but much more readable.
Despite the length of the book, Coggan leaves no stone unturned. The collapse of the Gold Standard, Bretton Woods, and the 2008 and subsequent sovereign debt crisis are all covered appropriately within this volume.
Rather than just been a simple chronological sweep of finance, phenomena such as bubbles, inflation, and monetary practices such as quantitative easing are all explained.
One is hardly left wanting for more, as most questions one is left asking after the events of recent years receive explanation.
As a book that, among many other things, focuses on the value of money, Paper Promises in itself is superb value for money, and an important asset for the investment portfolio of any economics enthusiast.
Having read previous books in the financial and monetary sector, Paper Promises compares favorably in the sense that it is truly the best of all worlds.
The first part of the book is a financial and monetary history in every sense worthy of Niall Ferguson's Ascent of Money, coupled with a monetary analysis every bit as astute as the works of Barry Eichengreen, but much more readable.
Despite the length of the book, Coggan leaves no stone unturned. The collapse of the Gold Standard, Bretton Woods, and the 2008 and subsequent sovereign debt crisis are all covered appropriately within this volume.
Rather than just been a simple chronological sweep of finance, phenomena such as bubbles, inflation, and monetary practices such as quantitative easing are all explained.
One is hardly left wanting for more, as most questions one is left asking after the events of recent years receive explanation.
As a book that, among many other things, focuses on the value of money, Paper Promises in itself is superb value for money, and an important asset for the investment portfolio of any economics enthusiast.
July 23, 2014
A lucid, even-handed and very timely exposition of the nature of money and credit. Coggan conveys the daunting scale of the debt problem the West has sunk into without sounding hysterical or despairing. The way he contextualises the problem by showing how it is both similar to, and different from previous crises is enlightening - this is one of those books that weaves together scraps of knowledge you already have into a coherent whole.
Even so, it is not a tome that reaches out to the most casual of readers: it is written in an authoritative style rather than the very personal, conversational tone that seems to be becoming the norm for popular books on economics. You will need a fair amount of interest in economics and a reasonable degree of concentration to get you from beginning to end, but if you make that journey, you will be well rewarded.
One of the book's key insights is seeing the world as a power struggle between creditors and debtors. The US, formerly a creditor, has become the world's biggest borrower, with China footing the bill. Meanwhile, individual borrowers dominate the political discourse in many democratic countries, which has caused public and private sector debt to explode with very few options for balancing the books that are politically palatable. What is the way out? It will be interesting - and not a little frightening - to discover this over the next couple of decades.
Even so, it is not a tome that reaches out to the most casual of readers: it is written in an authoritative style rather than the very personal, conversational tone that seems to be becoming the norm for popular books on economics. You will need a fair amount of interest in economics and a reasonable degree of concentration to get you from beginning to end, but if you make that journey, you will be well rewarded.
One of the book's key insights is seeing the world as a power struggle between creditors and debtors. The US, formerly a creditor, has become the world's biggest borrower, with China footing the bill. Meanwhile, individual borrowers dominate the political discourse in many democratic countries, which has caused public and private sector debt to explode with very few options for balancing the books that are politically palatable. What is the way out? It will be interesting - and not a little frightening - to discover this over the next couple of decades.
June 1, 2021
I've read a lot of books on the 2008 crisis but this was very different from all the past books that I've read on the topic. The best part about this was that it was written in a jargon free and lucid manner.
The book starts of by talking about the most favorite bubbles in history, the South Sea Bubble and the Mississippi Bubble which builds up the foundation of the book.
The major part of the book is then covered by the various currency mechanisms that worked earlier, bimettalism, gold standard, paper money, and Brettons Wood which finally ended in 1971. The author brilliantly illustrates how various countries fared with different systems, gives a glimpse into the great depression and the stature of Keynes as well.
The world changed after 1971, and having read all this history, you can already understand why a crisis like the one happened in 2008 was always a possibility.
The book doesn't describe the 2008 crisis and the financial aspects of it at all but all the macro policies are brilliantly illustrated.
He ends it with a couple of chapters on future growth, the trend of population, savings and energy requirements in future.
Considering that this book was written in 2011 and the developed nations have struggled with growth in the last decade, you'd love how foresighted the author was and his deep understanding of the economy.
The book starts of by talking about the most favorite bubbles in history, the South Sea Bubble and the Mississippi Bubble which builds up the foundation of the book.
The major part of the book is then covered by the various currency mechanisms that worked earlier, bimettalism, gold standard, paper money, and Brettons Wood which finally ended in 1971. The author brilliantly illustrates how various countries fared with different systems, gives a glimpse into the great depression and the stature of Keynes as well.
The world changed after 1971, and having read all this history, you can already understand why a crisis like the one happened in 2008 was always a possibility.
The book doesn't describe the 2008 crisis and the financial aspects of it at all but all the macro policies are brilliantly illustrated.
He ends it with a couple of chapters on future growth, the trend of population, savings and energy requirements in future.
Considering that this book was written in 2011 and the developed nations have struggled with growth in the last decade, you'd love how foresighted the author was and his deep understanding of the economy.
August 11, 2017
Lucid explanation, written in 2011, of how the western economies got into the mess of 2007-8, and of how little was done to correct the underlying problems. Coggan forecasts another crisis, even worse than the 2008 crunch, and it is difficult to disagree with him.
January 1, 2024
In the late 19th Century, economies were governed by the gold standard, a system that tied the amount of money in circulation to the stock of gold. Since governments could not magic more gold out of thin air, the standard did not allow for continuously rising prices and money.
When we multiply claims (debt), we do not expand real wealth in energy & manufactured goods, instead, asset prices, (like houses and shares) tend to rise too, which in turn pays off the return of the debt, and then allows people to borrow more money. Rising debt simply creates more claims on wealth, with debt and asset prices closely linked. This has been exacerbated by the “Greenspan Put” which was when the Fed rode to the markets rescue, guaranteeing essentially that they would not fall to a certain price. This was repeated during Covid-19, and led in many ways to Silicon Valley Entrepreneurs having a relaxed attitude to debt and bankruptcy. The world has been more successful in creating claims on wealth, than wealth itself.
Britain has not defaulted on its debt since 1672, in part because its creditors (wealthy merchants and the ruling class) who have owned the debt could democratically elect a different government if they were not payed.
The collapse of Bretton Woods in the 1970 helped debtors not creditors, as countries could depreciate their currencies (causing inflation) to help pay debt. Countries also lowered the currencies to increase exports and lessen imports or sometimes implement tariffs. This just reduced the size of the economic pie and left everybody poorer.
“The sound internal economic system of a nation is greater than the price of its currency” (Roosevelt).
Two crucial weakness in the Euro.
1. Under a floating rates system, Greece would have seen a decrease in the value of their currency, making their imports more expensive. Instead, the Euro bounced back and made imports cheaper, reducing the incentive for Greek businesses to invest in domestic production.
2. The only method for EU countries to handle debt crisis is to carry out austerity which causes huge political unrest. EU bailouts are pointless because economies don’t actually fundamentally restructure themselves. It the classic “Fudge and Nudge”. America has done the same with its day of reckoning. Debt is unlikely to be paid in real term to bond investors.
Countries that have to build properties want to see a decrease in property prices and improve national welfare. Apart for the rich who want apartments in central London, houses are generally not something that other economies buy, so it is actually unproductive for the UK economy and example of capital misallocated. Energy is another unproductive cost for economies- however with renewable energy 1) costs are reducing 2) likelihood that renewable energy producing counties will be able to export green energy to polluting counties.
American Industry leaders have often been plucked from business for the top US government jobs. In the 1960, as Ford was the engine of growth in America Kennedy declared that “what’s good for General Motors is good for America” Therefore GM got preferential light touch regulation. Now the same has happened with finance as it makes such a huge part of our economy, with many bankers now part of governments.
One way to reduce Triple Lock Pensions has been link pay-outs to the CPI index rather than RPI, as CPI undershoots the RPI by around 0.7%. Increased consumption taxes are also a great way to raise revenue and pay off debt. A rise in VAT in 2010 created 20% extra revenue for the UK, a better return than blanket austerity which is showing signs that alone, it rarely works.
This entire review has been hidden because of spoilers.
September 1, 2013
Another book on economics in general and debt in particular. This one is from an author who also writes for the Economist. And it shows. In a good way. The story is very readable and well-constructed. It shows how we moved from bartering, metal, the gold standard, Bretton Woods, to the dollar standard. The author describes debt as basically a struggle between creditor and debtor and, if seen this way, how it clarifies debt struggles throughout the ages. Especially 2007-2008 is analyzed. The post-Bretton Woods system has broken down, that much is made clear. Interesting are the chapters where the author theorizes on possible solutions. One of the most scary, interesting ones, highly rated as possible by the author, is one where the biggest creditor on earth, China, puts its mark on a new system. It would probably be about taking away free capital flows. Just imagine how this would nearly wipe out an entire industry... maybe that is not even a bad thing, giving how this industry has benefited from good investment calls, while pushing away bad debt to us, the tax payer.
September 21, 2017
Truly a fascinating book, about the different stages of the world monetary systems briefly from bartering, gold standard, Breton woods and now floating exchange rates.
This books covers loads of financial stories and the credit crunch with reasons why it happened and not just cuz bankers are wankers cuz we all over borrowed and trusted that housing is a says market, even tho fucking Adam smith said that's false growth some 300 years ago.
First book on economics and thought it might be a hard slog but turn about a very easy and enjoyable read.
Recommend to everyone and if I could I'd give 6 stars!
This books covers loads of financial stories and the credit crunch with reasons why it happened and not just cuz bankers are wankers cuz we all over borrowed and trusted that housing is a says market, even tho fucking Adam smith said that's false growth some 300 years ago.
First book on economics and thought it might be a hard slog but turn about a very easy and enjoyable read.
Recommend to everyone and if I could I'd give 6 stars!
August 22, 2018
Many of you who read this are probably avid readers of The Economist. I am always amazed at how many great articles that are written every week and especially how quickly and concisely they are able to comment on complicated and current matters. How wonderful then that a reporter of that magazine Mr Phillip Coggan (previously, among other things, also at FT, writing the Long view) has written a book on one of the most relevant subjects today, debt. Not just that, but putting debt in an historic context. It’s a story about how we all went from using gold to accepting paper money, with zero value. He calls it the wars between creditors and debtors. The book makes several interesting points, among them, please think about this: In between 1882-1982 US GDP grew 3.4% per annum, with total debt stable. How much did GDP increase from 1982 to today, and how much did debt increase? The answer is at the bottom of this page.
Key events for the author are the rise and fall of the gold standard and of Bretton Woods, and finally the current system. Mr Coggan describes all systems positives and negatives, but doesn’t have clear cut views on what’s best or what the endgame will be. His only conclusion, which is the same as many others like Rogoff etc, is that debt levels are too high, and that default in some form is unavoidable. In the final part of the book, he states that when paper promises breaks, this will result in an economic turmoil, which we just have seen the start of. I found his arguments convincing and the way he gives a historic perspective to current events makes this a must read if you are going to understand the world for the next 10+ years.
Paper Promises is a book that is very easy to read, with a multiple of interesting references so it’s easy to dig into whatever subject triggers further interest. However, it requires full concentration and I also think it helps to have read a few other books on similar topics like Niall Fergusson’s The Ascent of Money or Cash Nexus, or Carmen/Rogoff’s This Time It’s Different.
My views are neither those of a gold bug nor those of Lord Keynes, but rather, the pragmatist. Reading this book gives several arguments to both sides of the debate but also a lot of critique, which I appreciate. Coggan is in the more bearish camp, payback time is now, so he has a lot of references to well-known bears. But he is not just bearish based upon the increase in debt, but also on the basis of the weak trends in demographics, unrecognised pension liabilities, ever increasing healthcare costs as well as the risks of long term higher energy prices.
That’s all fine to me, but I think he misses out on some potential hopes, mainly the fact that emerging markets are growing very fast, and that could mean a relatively high sustainable global growth rate and new technology breakthroughs are not considered. So my only complaint with the book would be that it lacks an honest and sincere discussion on where he (and most intellectuals) could be wrong. If you haven’t read any books on these topics, this should be your first. You could then follow up with the other books mentioned above.
On a final note – the generation that lived through the 30’s, i.e his father, tended to be highly suspicious of debt after the depression. Coggan, the senior, refused to have a credit card. He cut the cards in unsolicited offers into pieces and sent them back to the card companies with stern lectures on inflation.
Key events for the author are the rise and fall of the gold standard and of Bretton Woods, and finally the current system. Mr Coggan describes all systems positives and negatives, but doesn’t have clear cut views on what’s best or what the endgame will be. His only conclusion, which is the same as many others like Rogoff etc, is that debt levels are too high, and that default in some form is unavoidable. In the final part of the book, he states that when paper promises breaks, this will result in an economic turmoil, which we just have seen the start of. I found his arguments convincing and the way he gives a historic perspective to current events makes this a must read if you are going to understand the world for the next 10+ years.
Paper Promises is a book that is very easy to read, with a multiple of interesting references so it’s easy to dig into whatever subject triggers further interest. However, it requires full concentration and I also think it helps to have read a few other books on similar topics like Niall Fergusson’s The Ascent of Money or Cash Nexus, or Carmen/Rogoff’s This Time It’s Different.
My views are neither those of a gold bug nor those of Lord Keynes, but rather, the pragmatist. Reading this book gives several arguments to both sides of the debate but also a lot of critique, which I appreciate. Coggan is in the more bearish camp, payback time is now, so he has a lot of references to well-known bears. But he is not just bearish based upon the increase in debt, but also on the basis of the weak trends in demographics, unrecognised pension liabilities, ever increasing healthcare costs as well as the risks of long term higher energy prices.
That’s all fine to me, but I think he misses out on some potential hopes, mainly the fact that emerging markets are growing very fast, and that could mean a relatively high sustainable global growth rate and new technology breakthroughs are not considered. So my only complaint with the book would be that it lacks an honest and sincere discussion on where he (and most intellectuals) could be wrong. If you haven’t read any books on these topics, this should be your first. You could then follow up with the other books mentioned above.
On a final note – the generation that lived through the 30’s, i.e his father, tended to be highly suspicious of debt after the depression. Coggan, the senior, refused to have a credit card. He cut the cards in unsolicited offers into pieces and sent them back to the card companies with stern lectures on inflation.
July 2, 2018
This book describes the history of money since the gold standard till the modern days. Very well segregates different stages of me net development.
What I didn't like was the fact that the reader is expected to know many of the events which took place - background knowledge makes this book simpler to read and understand.
Another weak part is a series of predictions that the author attempts to make. Some of them have already got cancelled.
What I didn't like was the fact that the reader is expected to know many of the events which took place - background knowledge makes this book simpler to read and understand.
Another weak part is a series of predictions that the author attempts to make. Some of them have already got cancelled.
December 8, 2021
After reading this book I felt like I "could see the matrix". I felt like money all made sense to me. It was all a mass delusion, but a necessary one that served an incredibly valuable purpose.
But understanding the delusional nature of money really helped me get over ideas like "Bitcoin isn't real, why wouldn't anyone buy that?!" because, none of it is real. So why not buy the newest "not real" currency that no one knows the (delusional) value of yet?
But understanding the delusional nature of money really helped me get over ideas like "Bitcoin isn't real, why wouldn't anyone buy that?!" because, none of it is real. So why not buy the newest "not real" currency that no one knows the (delusional) value of yet?
Read
December 24, 2021Lots of interesting stuff in this book: my favorite part of it is easily the section that takes a historical look at money and its forms over the years. I had no idea economies changed so much when they were tied to the gold standard; I find that so much more fascinating than looking at economic equations and "general principles". Would enjoy reading a whole book of that, with more small stories and stuff. The predictions about the future are pretty interesting.
August 29, 2022
A very relevant read even 11years on. For the most part a very accessible book, but there are some denser bits that aren't easily digested by the complete newbie to economics or finance. Would first recommend you read around on gilts/bonds/treasuries/mortgages before starting on this book. Also warning that by the end of it you'll be (more) fed up with the current monetary system and despair in the ability of elected incumbents to deal intelligently with the consequences of their decisions.
February 11, 2018
At the ending of historical experiments of unprecedented monetary easing, you must refresh your understanding of monetary system und currency. This is the best for doing so. Real purchasing power of your saving has been reduced by your own central bank for rescuing monetary system. You should not overlook such stealth taxation.
August 1, 2019
Written in 2012, the author may be a bit off base in assuming the inexorable rise and rise of China. However, the history of money and debt leading up to and including the 2007-8 meltdown is very well done.
July 24, 2022
Scary in many ways… the author guides you through the history of money until present days’ capital expansion. One step at a time, the ‘relativity’ of the intrinsic value of money becomes apparent. Sometimes not very fluent and, as legitimate to expect, no proposed solution at the end
February 24, 2025
Overall a really solid book, with a great thesis. The macro is incredibly well-written resulting in a must-read for monetary policy aficionados. Missing the remaining star due to some superficial and slightly flawed analysis of historical settings, and some unnecessary political/moral opinions.
September 29, 2024
The part about about history of paper money was good, when books moves on to current affairs of that time it becomes a slog.
December 27, 2023
The author manages to cover a great deal in only 300 pages. The book can be broken down into pre-1971 Nixon Shock and the following 40 years. Not a light read so being well read in econ and markets certainly helped. The authors opinions seep in over the final quarter which is unfortunate. There is a great deal of primary research and notes that are worth checking out.
It does add to my concern that the long arc of demographics coupled with an overuse of credit will ultimately be catastrophic. But that is well, just my opinion.
It does add to my concern that the long arc of demographics coupled with an overuse of credit will ultimately be catastrophic. But that is well, just my opinion.
July 12, 2013
By Robert Cole
Do you want to know how global financial system came to be and what it has become? Do you want to re-examine what you think you know? Paper Promises, by journalist Philip Coggan, is a good place to look for answers to those questions.
Coggan’s concise and lucid book will leave readers deeply doubtful about the system’s reliability and durability. At the centre of his portrait is the unending tussle between lenders and borrowers. Economies of all sorts have been undermined, says Coggan, because lenders have so frequently come off second best. Coggan charts the disappointments - from Dionysus to Kim Jong Il, via John Law’s France, Weimar Germany and the ongoing post-2008 crisis - with analysis that is as comprehensive as it is sobering.
Coggan also leaves readers in no doubt about his view that the Western world has been better at creating debts than wealth over the last 40 years. “Clearing the mess will be a long, slow process,” he says. “The debts may be repaid in inflated money, or devalued currency; they may be passed on to other governments with a greater capacity to pay; or they may result in outright default.”
It is hard to argue with Coggan’s contention that developed world growth over the last forty years has been fuelled by reckless borrowing. He’s right to express concern that Western economies, now tied in knots of debt with dwindling energy and growing welfare obligations, will struggle to find genuine growth. Yet he is also right to assert that lenders join borrowers in the mire if loans turn sour. As he points out, Chinese prosperity depends, at least in part, on lending to Western export markets.
Looking to the future, Coggan says that global economy is changing and suggests that a new world order will emerge. Noting that China, a massive holder of US Treasuries, is the world’s most powerful creditor, he also says that the new order will be “made in China”.
That means the Middle Kingdom will take a tougher stance on enforcing its contracts. Good for China, certainly. But will, as Coggan suggests, the West really suffer as a result of the change?
Boatloads of historical precedent will be overturned if the new order leaves lenders with paper promises they can depend on, and borrowers borrowing only what they can truly afford. But the benefits of such change, and the dependable money systems it would foster, would accrue in all corners of the globe.
Do you want to know how global financial system came to be and what it has become? Do you want to re-examine what you think you know? Paper Promises, by journalist Philip Coggan, is a good place to look for answers to those questions.
Coggan’s concise and lucid book will leave readers deeply doubtful about the system’s reliability and durability. At the centre of his portrait is the unending tussle between lenders and borrowers. Economies of all sorts have been undermined, says Coggan, because lenders have so frequently come off second best. Coggan charts the disappointments - from Dionysus to Kim Jong Il, via John Law’s France, Weimar Germany and the ongoing post-2008 crisis - with analysis that is as comprehensive as it is sobering.
Coggan also leaves readers in no doubt about his view that the Western world has been better at creating debts than wealth over the last 40 years. “Clearing the mess will be a long, slow process,” he says. “The debts may be repaid in inflated money, or devalued currency; they may be passed on to other governments with a greater capacity to pay; or they may result in outright default.”
It is hard to argue with Coggan’s contention that developed world growth over the last forty years has been fuelled by reckless borrowing. He’s right to express concern that Western economies, now tied in knots of debt with dwindling energy and growing welfare obligations, will struggle to find genuine growth. Yet he is also right to assert that lenders join borrowers in the mire if loans turn sour. As he points out, Chinese prosperity depends, at least in part, on lending to Western export markets.
Looking to the future, Coggan says that global economy is changing and suggests that a new world order will emerge. Noting that China, a massive holder of US Treasuries, is the world’s most powerful creditor, he also says that the new order will be “made in China”.
That means the Middle Kingdom will take a tougher stance on enforcing its contracts. Good for China, certainly. But will, as Coggan suggests, the West really suffer as a result of the change?
Boatloads of historical precedent will be overturned if the new order leaves lenders with paper promises they can depend on, and borrowers borrowing only what they can truly afford. But the benefits of such change, and the dependable money systems it would foster, would accrue in all corners of the globe.
September 30, 2013
Paper Promises (2011) by Phillip Coggan is a masterful study of money and debt. Coggan worked at the Financial Times for 20 years and now writes at The Economist. He has written a number of books on finance that are all highly regarded. The book looks at the history of money and credit and concentrates on the post industrial revolution world where credit and fiat currency rapidly expanded.
The book starts with a brief look at money in history before moving the C19 and then C20 and most of the book looks at the period from the depression onwards. The impact of tight money in the depression is carefully examined. Beyond that the Bretton Woods settlement that was in place during the rapid economic growth after WWII and the post Bretton Woods era of freely traded rapidly inflating currencies and the GFC is studied.
The book has a lot of well chosen quotes including the observation the Alan Greenspan displayed asymmetric ignorance in that he knew when a downturn was happening but did not detect bubbles. Coggan also points out how gold was trading at $35 an ounce in 1971 at the end of the Bretton Woods agreement and now trades at $1900, so the modern world has devalued in 40 years as much as Rome did in 200.
The last chapters of the book are fascinating. Coggan looks at how the build up of debt in the latter half of the C20 for Social Spending has been managed by substantial population growth as well as productivity growth and that at least the first, and possibly the second is reducing and that the debts accumulated today cannot be paid off. There will have to be reductions in the debt burden either explicitly or through currency devaluation. Coggan does miss however, that budgets can be balanced as was done by Germany, Singapore, Australia’s last competent government and various Scandinavian countries.
The book doesn't give firm recommendations and fairly describes various positions on monetary and fiscal policy. The final chapters don’t give a recommendation but rather a description of the serious problems that many countries around the world are now facing. The books tone and insight are very much like The Economist magazine for which Coggan now writes for. The clear, succinct style is a great strength in looking at a complex issue like money. The book is very much worth reading for anyone interested in finance and economics.
The book starts with a brief look at money in history before moving the C19 and then C20 and most of the book looks at the period from the depression onwards. The impact of tight money in the depression is carefully examined. Beyond that the Bretton Woods settlement that was in place during the rapid economic growth after WWII and the post Bretton Woods era of freely traded rapidly inflating currencies and the GFC is studied.
The book has a lot of well chosen quotes including the observation the Alan Greenspan displayed asymmetric ignorance in that he knew when a downturn was happening but did not detect bubbles. Coggan also points out how gold was trading at $35 an ounce in 1971 at the end of the Bretton Woods agreement and now trades at $1900, so the modern world has devalued in 40 years as much as Rome did in 200.
The last chapters of the book are fascinating. Coggan looks at how the build up of debt in the latter half of the C20 for Social Spending has been managed by substantial population growth as well as productivity growth and that at least the first, and possibly the second is reducing and that the debts accumulated today cannot be paid off. There will have to be reductions in the debt burden either explicitly or through currency devaluation. Coggan does miss however, that budgets can be balanced as was done by Germany, Singapore, Australia’s last competent government and various Scandinavian countries.
The book doesn't give firm recommendations and fairly describes various positions on monetary and fiscal policy. The final chapters don’t give a recommendation but rather a description of the serious problems that many countries around the world are now facing. The books tone and insight are very much like The Economist magazine for which Coggan now writes for. The clear, succinct style is a great strength in looking at a complex issue like money. The book is very much worth reading for anyone interested in finance and economics.
June 17, 2012
Money--paper money--functions as a medium of exchange and a store of value. It is the latter that book is all about. How the value of money is measured and how the currencies of the developed economies have constantly lost value, through devaluation and expansionary monetary policies; through inflated and subsequently depressed asset value; and through debts expanded faster than the economy.
The book is bleak about the future of the current global financial architecture. The author predicts--hopes--for gradual if fundamental change of order. He is convinced that the new order will be, like many things, made in China. And the he end will be as gradual as did the end of the gold standard and the Bretton Woods system.
The current system of liberal exchange rates, with the US Dollar as the dominant currency agains which prices of other currencies and international commodity are measured, cannot be sustained. Reliance on inflating asset prices could not last as the recent crises show. The level of debt in the developed countries are too high and will not be paid in full, either through inflated money, devalued currency, or not at all through default. The level of these economies' productivity is declining because of aging population and higher energy prices that will impact productivity.
The future, for Coggan, will be marked by some form of controlled exchange rate among currencies. There will be a retreat of the financial sector as main driver of the global economy.
The book is bleak about the future of the current global financial architecture. The author predicts--hopes--for gradual if fundamental change of order. He is convinced that the new order will be, like many things, made in China. And the he end will be as gradual as did the end of the gold standard and the Bretton Woods system.
The current system of liberal exchange rates, with the US Dollar as the dominant currency agains which prices of other currencies and international commodity are measured, cannot be sustained. Reliance on inflating asset prices could not last as the recent crises show. The level of debt in the developed countries are too high and will not be paid in full, either through inflated money, devalued currency, or not at all through default. The level of these economies' productivity is declining because of aging population and higher energy prices that will impact productivity.
The future, for Coggan, will be marked by some form of controlled exchange rate among currencies. There will be a retreat of the financial sector as main driver of the global economy.
February 5, 2017
While this book certainly comes across as quite pessimistic, I found it to be perfectly balanced and intriguing in its predictions. Coggan takes the reader through the evolution of economic policy since the mid-18th century through the 2007-08 recession and its aftermath. Along the way he points out how our understanding of the nature of money, debts and their moral implications have drastically changed. He also shows how after major crisis, especially since the early 20th century, the dominating financial paradigm has drastically changed. He spends time showing how each new paradigm affected the perennial conflict between debtors and creditors as well as the ever increasing clout of the US. He thus finishes the book with an intriguing prediction of what the new paradigm might be and where it might shift economic, and thus political, power. All in all, I found the book quite interesting and, apart from a few lapses into financial jargon, quite readable for the financial layman.
May 31, 2012
Written in the crisp, clear, concise style that we would expect from somebody that also writes for The Economist. The book is at once informative and detailed, without being patronising, or requiring the reader to be overly knowledgeable on its subject matter in advance. it describes clearly the uses and value of money and how this has changed throughout the past few hundred years. Thus the first half of the book reads as an informative history. he second half of the book takes the wisdom from history and applies it to our understanding of the financial debacle from 2007 onwards, before musing on what the future holds. Compelling reading.
October 12, 2012
Excellent book!!! Helps you understand the current financial crisis through the lens of Debtors and Creditors. China is the biggest creditor while the US is the biggest debtor (contrary to what existed pre 1950s). Governments in all countries always try and protect the interests of debtors and not creditors. Excess debt will probably lead to three things 1) inflation, 2) stagnation 3) default. Any currency devaluations is in effect an indirect way of default. The US currency has depreciated by 98% since 1971 after the fall of the Bretton Woods treaty and when the US de-linked to the Gold standard.
December 1, 2012
Exceedingly well written book(like most other Economist books, it manages to convey its points in plain english without dumbing down), and very insightful. One can read the book as an introductory primer AND as an advanced reference, depending on their inclination to think and analyze. I thought this is just another of the those post subprime books, but it is worth a read irrespective of the other trash one has read before. But then, that is only expected from an Economist book. Plenty of literary allusions make this a pleasant read too.
Some insights-money as reserve currency=>deficit to run; financial repression & -ve real interest rates->reduce public debt(Basel III?)
Some insights-money as reserve currency=>deficit to run; financial repression & -ve real interest rates->reduce public debt(Basel III?)
June 22, 2013
Very readable, and recommended to anyone looking for an intelligent entry-level look at the subject matter.
Sidenote: I'm always struck by how tenuous our global financial system seems to be - everything hinges on promises and beliefs and approximations. Change one digit in a computer system and it seems like it could all come apart, especially when we're talking about uncountable billions or trillions of dollars. I guess it's a good thing I didn't study economics.
Sidenote: I'm always struck by how tenuous our global financial system seems to be - everything hinges on promises and beliefs and approximations. Change one digit in a computer system and it seems like it could all come apart, especially when we're talking about uncountable billions or trillions of dollars. I guess it's a good thing I didn't study economics.
February 2, 2014
A very readable history of debt and money.
This book made a lot of sense. He explained problems related to the amount of debt, the demographic implications on debt repayment and even how energy has impacted economic change. Overall, not very encouraging in that he believes we still are not through the current economic crises and have some tough times ahead.
"a new system will be set by today's creditors in China and the Middle East"
This book made a lot of sense. He explained problems related to the amount of debt, the demographic implications on debt repayment and even how energy has impacted economic change. Overall, not very encouraging in that he believes we still are not through the current economic crises and have some tough times ahead.
"a new system will be set by today's creditors in China and the Middle East"
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August 5, 2016KOBOBOOKS
Reviewed at The Independent
Reviewed at The Independent
July 23, 2012
A really in-depth and good look at the history of debt and international monetary/banking systems. While his ultimate predictions for the future aren't revolutionary, they do provide some insight into the changing nature of the financial balance of power worldwide.
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