The American economist John Kenneth Galbraith (1908-2006), a world-renowned academic, professor at Princeton University, Cambridge and Harvard was published in the BUR Saggi series Milan, in April 2013, under the title “Money: Whence It Came, Where It Went”. Its first American edition dates back to 1975 and was reissued in 1995. The topics are particularly timely, this book aims to help understand how the dynamics of money has characterized the economic history of the United States of America and therefore the role played by the monetary policies of modern economies.
This particularly relevant subject is not only in reference to the European situation and the most advanced economies, but also concerns the whole global context which is characterized today by a highly discussed globalization process, its effects not always being positive on the standard of living of the populations.
The author tells us about the birth of the modern coin, initially beaten in precious metal and with various alloys, mainly related to the availability of gold, silver, and even copper. He also presents a singular American experience of the seventeenth and eighteenth centuries, during which tobacco and bourbon (liquor) were used as money in some states with a predominantly agricultural economy.
The aspect to emphasize is that of a monetary type endowed with an “intrinsic value”, since represented by an economic good with a specific utility, to which is added the characteristic of being universally fungible. It is clear from this text that monetary circulation is linked on one hand to the formation of the cash deficit (revenue <expenditure) of the general government, and on the other hand to the development of economic affairs in the business economy in the community and therefore the growth of the economy. Money also plays an important role in the financing of war expenditures, becoming a critical factor of success in the presence of sufficient availability. With economic development, it has then gained more importance, and influences the circulation of bank money, called by the author “bank notes” to distinguish it from legal banknotes and metallic money. The type of paper money, convertible into precious metal at a given rate, appeared next.
In this presentation, Galbraith highlights the advantages and disadvantages of the circulation of a convertible currency and thus quantitatively linked to the availability of gold and silver, with sometimes negative effects on economic performance and on the contrary, inflationary and favorable to income growth. There are many historical examples, even recent ones, of the suspension of “convertibility” due to a significant increase in the amount of banknotes and banknotes in circulation, generally related to war situations and huge expenses due to the conflict.
In an unprecedented interpretation of the economic and monetary reality of modern production systems, Galbraith reports the origin of inflation in certain contextual situations to the commercial power of producers, allowing them to increase prices for profit growth, even in the presence of a demand whose tendency is a general slowdown of the economy. To this end, he indicates the American experience of the Second World War and the Korean War, during which the government implemented a controlled price policy that stopped contextual inflation of income growth, driven by war expenses the arms industry. The author draws on these experiences to highlight the inefficiency of monetary policies in the fight against rising prices in certain production and market contexts.
Another interesting aspect developed in this work and with a particularly historic tone is that of the role of banks in modern economies and the long history of American bankruptcies, with serious damage to the public because of the loss of savings and with consequent negative effects on consumption and investment. It is curious, but also instructive to understand the human attitude towards historical events. In fact, humanity seems to have a “short” memory, since only a few decades ago we had a financial crisis of the same intensity and with identical causes, namely, the irresponsible behavior of the banks in the management of their activities with risk taking beyond their financial commitment and therefore with substantial budget losses in phases of slowing economic growth.
In fact, this situation is similar to the current one, but with the difference that bankruptcies are generally avoided thanks to the massive intervention of central banks and governments, which in fact assume responsibility for the losses of banking institutions.
Thus, bankers, responsible for reckless policies in the conduct of business and managerial attitudes typical of “moral hazard”, do not assume the responsibility of their mistakes and the consequences of serious behavioral omissions, manifesting the detestable phenomenon known as “privatization” of profits in the face of a “socialization” of losses.