Money of the Mind: How the 1980s Got That Way

by James Grant

The 1980s witnessed a lemming-like rush into the sea of debt on the part of the American industrial and financial communities, with consequences we are only beginning to appreciate. But the speculative frenzy of the eighties didn't just happen. It was the culmination of a long cycle of slow relaxation of credit practices--the subject of James Grant's brilliant, clear-eyed history of American finance. Two long-running trends converged in the 1980s to create one of our greatest speculative the democratization of credit and the socialization of risk. At the turn of the century, it was almost impossible for the average working person to get a loan. In the 1980s, it was almost impossible to refuse one. As the pace of lending grew, the government undertook to bear more and more of the creditors' risk--a pattern, begun in the Progressive era, which reached full flower in the "conservative" administration of Ronald Reagan. Based on original scholarship as well as firsthand observation, Grant's book puts our recent love affair with debt in an entirely fresh, often chilling, perspective. The result is required--and wickedly entertaining--reading for everyone who wants or needs to understand how the world really works.
"A brilliantly eccentric, kaleidoscopic tour of our credit lunacy. . . . A splendid, tooth-gnashing saga that should be savored for its ghoulish humor and passionately debated for its iconoclastic analysis. It is a fitting epitaph to the credit binge of the '80s."--Ron Chernow, The Wall Street Journal.

Genres: Finance, History, Economics, Business, Nonfiction, Personal Finance, Money

528 pages, Paperback

First published January 1, 1992

About the author

There is more than one author by this name on Goodreads.

James Grant, financial journalist and historian, is the founder and editor of Grant’s Interest Rate Observer, a twice-monthly journal of the investment markets. His book, The Forgotten Depression, 1921: the Crash that Cured Itself, a history of America’s last governmentally unmedicated business-cycle downturn, won the 2015 Hayek Prize of the Manhattan Institute for Policy Research.

Among his other books on finance and financial history are Bernard M. Baruch: The Adventures of a Wall Street Legend (Simon & Schuster, 1983), Money of the Mind (Farrar, Straus & Giroux, 1992), Minding Mr. Market (Farrar, Straus, 1993), The Trouble with Prosperity (Times Books, 1996), and Mr. Market Miscalculates (Axios Press, 2008).

Reviews

[Drew · Rating 3 out of 5]

Great book on the development of modern banking in America. While the Author's conservative bend is apparent in his writing the narrative of various responses to banking crises helps lay a foundation for the establishment of the Federal Reserve. The narrative is exciting despite it's dated material and is useful for understanding why the GFC in 2007 could occur as there is nothing new in the realm of modern finance.

[Frank Stein · Rating 4 out of 5]

While occasionally rambling, this book provides one of the funniest and most insightful looks at American financial history you'll find anywhere. Grant explores the rise of consumer lending through Arthur Morris's "Morris Plan" workers' banks in the early 20th century, the fall of George F. Baker's vaunted and safe-as-gold First National Bank in New York, and the gradual extensions of more and more government subsidies for lending and borrowing. Although much of this book reads as a cri de coeur from an old banker horrified at the explosion in new finance and lending, there is much old wisdom in it.

[Ryan · Rating 5 out of 5]

If you are curious about the history of banking and finance in America, this book is for you. As a non-financial type (I was a science major), it can be difficult to read anything on the subject simply because I do not have the vocabulary. What makes James Grant's writing special is that he loses the jargon and can define a concept in a sentence or less.

Coupling a dry wit with a truly compelling story about the history of banking in America, "Money of the Mind" illustrates the disasters of American finance and how they came to be. Throughout the book, the Grant makes the argument of how reform in banking has led to what he calls the "socialization of risk". Instead of stabilizing our financial system as intended, reform has in some ways made it more volatile and irresponsible.

On the final page, he closes with this line:

"Knowing the past, one reads the morning papers with a sense of fatalism."

History doesn't repeat itself exactly, but it certainly feels familiar.

[Kyle Shores · Rating 4 out of 5]

The author does a fantastic job of detailing the democratization and expansion of credit in the United States. The content most probably above my head but I still was able to learn so much about the history of debt and also much about our economy. Though the book details events only up to just before the dot com era, the concepts are still sound today: speculation on margin is bad. My only complaint is that while the book is vaguely chronological, the ideas of the chapter often jump multiples of decades between paragraphs to express an idea. This is necessary, but nonetheless annoying when one doesn't only study financial history.

[Parker · Rating 4 out of 5]

This one took a while. Great history and some fascinating stories. I feel like it was a little fatalistic in the connection between politicians and bankers in creating a cycle of excess credit to the point of roaster without suggesting some kind of policy solution, but given the history it tells there isn’t much hope for that. Kind of interesting to read as we are currently seeing auto loans >5years and record home sales, granted we have remarkably low interest rates. Would recommend this one, but would caution patience.

[David · Rating 4 out of 5]

Nothing ever really changes-the problems in the past continue on in the foreseeable future

[Rommel Harlequin Monet · Rating 4 out of 5]

Grant is a clever-clogs wordsmith who wears a bow tie and writes a scary newsletter for snobby New Yorkers.

PROS: it always has a funny cartoon section and tells you to buy gold coins which have gone from $300/oz in 2002 to $2400 today. Enough to almost keep up with SPY. Plus gold is great for money laundering if you are into drug smuggling, something Grant often alludes to, but for obvious reasons, doesn't discuss explicitly.

ChatGPT tells us:

*** As of my last update in January 2022, there is no credible information or evidence suggesting that James Grant, the financial journalist and editor of Grant's Interest Rate Observer, has any connection to drug smuggling. James Grant is primarily known for his work in financial journalism, analyzing interest rates, and offering insights into the financial markets.***

CONS: It costs $1825 per year, and missed out on the FAANGS mania. Grant pines for the olden days, and is out of touch with the new reality, ...a price to book of 40 or 50 and a PE of 60 or 70 isn't that expensive these days.

Better to pass on the anxiety letter, and go with the trendy new-wave macroeconomists - Cathie Wood and Michael Saylor who actually understand how the 21st century works. "Disruptive technologies" and "digital assets" are the emperor's new clothes. Not gold-money, that's so 19th C.

The book was pretty good, I especially liked the quote by banker Stillman: "Every American should reduce his talking by two thirds. There is rarely any reason to talk". I'd add: "reduce your iPhone screen time by four fifths. There is rarely any reason to look at your phone." Unless you're looking at google-maps for driving directions, of course.

It's no 50 Shades of Grey, but it's worth a look and has good pictures.

[Stan · Rating 5 out of 5]

Great book.

I first read Jim Grant's newsletter at some point around 1988, when a Wall Street friend of mine would occasionally forward to me old issues of Grant's Interest Rate Observer.

Even though I worked in the finance industry, I knew little financial history and knew nothing of the history of credit. Grant's thinking, couched in a sly, witty writing style, usually went right over my head. He needs & rewards repeated readings.

Grant makes a good living solely on the basis of his thinking, from his historically-informed, often hetereodoxical interpretation of the day's headlines. He is a wise man whose utterances are well worth tuning in.

I regret not reading this book much earlier in my so-called career. Though published in 1992, like all great books much of what he retails in these pages is still timely & relevant to our present situation.

Over the last three decades I've read a lot of Grant's output. He's influenced my thinking. What is his thinking?

Grant is a skeptic. He is a great student of history, which makes him a great guide to history because he is always open to the possibility that he may be wrong. That makes him pious, too. He is not full of himself. He is probably the single greatest reason why I believe I must read/study Dr. Samuel Johnson.

Like all of my intellectual heroes, Jim Grant has made a lasting influence upon my thinking, upon my personality, upon the way I make sense of the world, which is the highest compliment I can pay him.

Grant's thinking is large, contains multitudes, is not deterministic, and is very much worth imbibing.

I rank Jim Grant in my pantheon right alongside Richard Rorty, Gordon Wood, David Bromwich, Nicholas Lemann, Joan Didion, Frank Kermode, Lionel Trilling, David Stockman, & up-and-comers like William Deresiewicz, Adam Kirsch, & Laura Kipnis.

[John · Rating 4 out of 5]

Wigmore had psychoanalyzed the boom. It was a bull market in credit, & credit is the money of the mind. He had not delved into the real-estate lending, boat lending, art lending, or auto lending, but any investor could see a unifying pattern across the markets. On paper, the Chapter 7 procedure seems to be arduous. A bankrupt must surrender his assets, cooperate with the US trustee, & meet with creditors to discuss the accuracy of financial statements. Only then does he reach the promised land of "discharge"- relief from pre-bankruptcy obligations (except, for instance, from unpaid taxes & child support). Personal bankruptcy filings shot up from 1.2 per 1000 in mid-1980s to more than 3 per 1000 in 1991. The 6 years in which a debtor could obtain another court-sanctioned discharge was longer, even, than the term of the average car loan. The story of financial reform in the US has been a story of problems displaced rather than solved. One believes in the powers of markets & reason but not in the perfectability of lenders & borrowers.

[Saleh · Rating 5 out of 5]

Very revealing. Every lender or bond investor should read this. It helped me understand fully why Citibank had its two debacles in the 1980s (Latin American & US Real Estate); a question of great interest to me as an ex-Citibanker.

[Nicolai · Rating 5 out of 5]

a fantastic reminder that at any point in time there are warps in the financial system. a brilliant writer

[Will Kaufman · Rating 4 out of 5]

Would you like to understand money?

[Aharon · Rating 4 out of 5]

His most hippieish, freeform book.