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The Lost Science of Money: The Mythology of Money, The Story of Power
Book by Zarlenga, Stephen A.
736 pages, Hardcover
First published December 1, 2002
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Displaying 1 - 9 of 9 reviews
June 8, 2020
This is a huge and curious book, according to the author originally published in Switzerland in German. The English version came out 13 years ago.
The point it tries to make is that money is a legal concept and should by law be issued by government as needed, not by banks in a fractional reserve system like we have in the United States.
In our system, the government must go into debt through the issue of bonds by way of the banking system in order to pay for services to the people, needlessly borrowing money in order to then turn around and spend it when it could directly issue the money to the service providers, contractors building roads, for example.
The author correctly points out that money is treated like a commodity, traded in a market that pretends money is no different from soybeans or copper, an investment that yields interest. This has traditionally been called usury, condemned by all the major religions. Money should be only for transactions, a method of easing trade between parties that avoids the impractical bartering that was used before money came into use. Only productive activities should make money, not the holding of money itself.
Unlike gold or soybeans that are produced in certain quantities that cannot be easily increased or decreased, money as we know it is rapidly increased or decreased through the issuance of credit by the banks. In a fractional reserve system like we have, only about 10% of the amount of credit issued by banks is backed with actual money deposited in the banks. The other 90% is only a notation in a bank that gives the debtor the ability to spend with only that 10% backing it and only then if depositors don't withdraw that 10%. This is an invitation to booms and busts and is the reason for the storied run on the bank. Credit can be created or destroyed instantly because it is 90% thin air.
For this reason, our system invites and produces repeated investment bubbles that make it appear the economy is booming, only to be followed by collapse into recessions or depressions. The answer is to limit the issuance of money so that there can be no sudden increases or decreases and only the amount needed to keep the economy running steadily with a gradual increase should be issued. Ideally, the government could do this and the author gives examples in history of this, such as money issued during the American Revolutionary War and again during the Civil War.
The book is lengthy because the author wants to follow money through history in order to make his case that it can be issued successfully by government. Unless this power is reserved to the government, it will be subverted by private parties that see the opportunity to profit greatly if they can take over the handling of money themselves in order to get a credit system going they can exploit through making the government a debtor.
Another important point is that there is no use basing money on any commodity such as gold or silver. This pretends that there is some fixed amount of material that will keep money stable. The problem is the amount of money needed by an economy is not fixed and to pretend that gold (or any other material) should determine the quantity of currency is to invite deflation (increasing value of money over time) as an economy attempts to expand while the amount of gold is fixed. The effect is to greatly increase the value of gold beyond that based on its practical use, resulting in a destabilizing international trade in gold the causes gyrations in currency value. The fact that the United States had to go off the gold standard leaving huge quantities of gold sitting in vaults far beyond any practical need makes the point that gold in itself is not of great value. It was valuable because we made believe it was so.
The presentation is clunky with a variety of typefaces and too many ALL CAPITAL HEADINGS. Though organized by time, the author digresses frequently and doesn't smoothly return to topic. My impression is that the author alone was the proofreader. Most books of this nature have several people who are familiar with the topic read over the manuscript to get it into the most presentable form. In this sense it is not a professionally done book, which is not to say that the points it makes are not valid and important, but I think the average person would be put off by the length and manner of presentation. This is a shame because the main points are important to get to the public, and could be in a concise book a fifth the length.
I believe the case is made that highly regulated issue of currency by the government directly would be preferable to the system controlled by the banks that we have now, one that has proven itself destructive repeatedly. It is sobering that the author predicts another economic collapse as he writes in 2002 and the very thing happened in 2007. He sees collapse as the best opportunity for change, yet in this latest episode, I did not hear one word about the system he proposes though I avidly followed the economic news throughout the housing bust. I only happened across this book in a link encountered on a blog a few months ago.
It's clear from the bailout through the Federal Reserve (not a government agency) that the banks have an iron grip on our economy. Lobbies run our government and the banks have the Fed, their own private creation, to work for their benefit. Until the lobbies are defeated by publicly financed political campaigns, this book is purely a theoretical treatise. Prisoners in a jail can be well informed about where to go and what to do upon escaping, but without the tools to cut iron bars, they remain in jail.
The point it tries to make is that money is a legal concept and should by law be issued by government as needed, not by banks in a fractional reserve system like we have in the United States.
In our system, the government must go into debt through the issue of bonds by way of the banking system in order to pay for services to the people, needlessly borrowing money in order to then turn around and spend it when it could directly issue the money to the service providers, contractors building roads, for example.
The author correctly points out that money is treated like a commodity, traded in a market that pretends money is no different from soybeans or copper, an investment that yields interest. This has traditionally been called usury, condemned by all the major religions. Money should be only for transactions, a method of easing trade between parties that avoids the impractical bartering that was used before money came into use. Only productive activities should make money, not the holding of money itself.
Unlike gold or soybeans that are produced in certain quantities that cannot be easily increased or decreased, money as we know it is rapidly increased or decreased through the issuance of credit by the banks. In a fractional reserve system like we have, only about 10% of the amount of credit issued by banks is backed with actual money deposited in the banks. The other 90% is only a notation in a bank that gives the debtor the ability to spend with only that 10% backing it and only then if depositors don't withdraw that 10%. This is an invitation to booms and busts and is the reason for the storied run on the bank. Credit can be created or destroyed instantly because it is 90% thin air.
For this reason, our system invites and produces repeated investment bubbles that make it appear the economy is booming, only to be followed by collapse into recessions or depressions. The answer is to limit the issuance of money so that there can be no sudden increases or decreases and only the amount needed to keep the economy running steadily with a gradual increase should be issued. Ideally, the government could do this and the author gives examples in history of this, such as money issued during the American Revolutionary War and again during the Civil War.
The book is lengthy because the author wants to follow money through history in order to make his case that it can be issued successfully by government. Unless this power is reserved to the government, it will be subverted by private parties that see the opportunity to profit greatly if they can take over the handling of money themselves in order to get a credit system going they can exploit through making the government a debtor.
Another important point is that there is no use basing money on any commodity such as gold or silver. This pretends that there is some fixed amount of material that will keep money stable. The problem is the amount of money needed by an economy is not fixed and to pretend that gold (or any other material) should determine the quantity of currency is to invite deflation (increasing value of money over time) as an economy attempts to expand while the amount of gold is fixed. The effect is to greatly increase the value of gold beyond that based on its practical use, resulting in a destabilizing international trade in gold the causes gyrations in currency value. The fact that the United States had to go off the gold standard leaving huge quantities of gold sitting in vaults far beyond any practical need makes the point that gold in itself is not of great value. It was valuable because we made believe it was so.
The presentation is clunky with a variety of typefaces and too many ALL CAPITAL HEADINGS. Though organized by time, the author digresses frequently and doesn't smoothly return to topic. My impression is that the author alone was the proofreader. Most books of this nature have several people who are familiar with the topic read over the manuscript to get it into the most presentable form. In this sense it is not a professionally done book, which is not to say that the points it makes are not valid and important, but I think the average person would be put off by the length and manner of presentation. This is a shame because the main points are important to get to the public, and could be in a concise book a fifth the length.
I believe the case is made that highly regulated issue of currency by the government directly would be preferable to the system controlled by the banks that we have now, one that has proven itself destructive repeatedly. It is sobering that the author predicts another economic collapse as he writes in 2002 and the very thing happened in 2007. He sees collapse as the best opportunity for change, yet in this latest episode, I did not hear one word about the system he proposes though I avidly followed the economic news throughout the housing bust. I only happened across this book in a link encountered on a blog a few months ago.
It's clear from the bailout through the Federal Reserve (not a government agency) that the banks have an iron grip on our economy. Lobbies run our government and the banks have the Fed, their own private creation, to work for their benefit. Until the lobbies are defeated by publicly financed political campaigns, this book is purely a theoretical treatise. Prisoners in a jail can be well informed about where to go and what to do upon escaping, but without the tools to cut iron bars, they remain in jail.
August 29, 2016
This could be considered a Bible of Monetary History. Def. marking to re-read again later, because you can't digest it from the first time. Like a fine wine it calls again.
December 9, 2012
If you want to understand the current financial mess and how we got here, this is a really good book to start with. Traces the history of money from around 1,500 BC to present day. Answers the question 'what is money?' and makes you think about what money 'should be'.
February 7, 2021
Exhaustively researched by a strongly independent thinker and finance professional who is not afraid to make normative recommendations on economic policy, but somehow manages to remain even-handed for almost a thousand pages. World history through the lens of money, with many historical details totally absent in other writers. Engages the philosophical and spiritual context to monetary history, and is fearless in its attacks on, variously, the ancient Persians, 16th century Amsterdam Rabbis, Oliver Cromwell, Adam Smith, Marx, the Austrian School, the World Bank, the IMF, et al. etc. In contrast, gives refreshingly balanced accounts of the economic policies of Byzantium, the Third Reich, Abraham Lincoln, and Ezra Pound (Pound himself considered A. Del Mar, a Jewish American economist from the 19th century, to be one of the greatest economic thinkers and writers of all time, and Zarlenga's work too heavily draws on the ideas of Del Mar).
Written in a fast paced style, beginning with the ancient history of money in the west from the pre-Roman period to the present, I found it hard to ignore the book and finished it in two weeks. Being well-versed in writings of Mises, Rothbard, Sowell, Friedman, and other Austrians, I read this book to break me out of my comfort zone and challenge my ideas, and it did. Printed on thick all white paper in large font with a nice rigid binding, it has helpful end notes at the end of each chapter. Even if you disagree with every one of the author's interpretations, there is enough forgotten history here to justify the price of the book alone.
My only criticism is that the author sometimes assumes knowledge of various financial instruments and terminology, and as a result one is occasionally left feeling like one should understand the implications of some described scheme or financial instrument, but alas one remains in ignorance until looking up the term or a money flow diagram on the internet. Still a life changing book.
Written in a fast paced style, beginning with the ancient history of money in the west from the pre-Roman period to the present, I found it hard to ignore the book and finished it in two weeks. Being well-versed in writings of Mises, Rothbard, Sowell, Friedman, and other Austrians, I read this book to break me out of my comfort zone and challenge my ideas, and it did. Printed on thick all white paper in large font with a nice rigid binding, it has helpful end notes at the end of each chapter. Even if you disagree with every one of the author's interpretations, there is enough forgotten history here to justify the price of the book alone.
My only criticism is that the author sometimes assumes knowledge of various financial instruments and terminology, and as a result one is occasionally left feeling like one should understand the implications of some described scheme or financial instrument, but alas one remains in ignorance until looking up the term or a money flow diagram on the internet. Still a life changing book.
December 29, 2019
I used to work for the author; I helped promote this book.
March 16, 2023
Read this if you want to understand what money really is. Spoiler, you've probably been lied to.
June 5, 2011
A seminal and vital work for any serious economics student
October 6, 2021
Great book but some of the conclusions do not jibe with the book The Bitcoin Standard. I guess the problem is in how you interpret historical events.
November 21, 2009
Great insights found in no other book.
Displaying 1 - 9 of 9 reviews