Speaker 1: But knowledge to work and grow your business with c
Speaker 1: i T from transportation to healthcare to manufacturing. C i
Speaker 1: T offers commercial lending, leasing, and treasury management services for
Speaker 1: small and middle market businesses. Learn more at c i
Speaker 1: T dot com put Knowledge to Work. Hello and welcome
Speaker 1: to another edition of the Odd Lots Podcast. I'm Joe Wisenthal,
Speaker 1: Managing editor of Bloomberg Markets, and I'm Tracy Alloway, Executive
Speaker 1: editor of Bloomberg Markets. Uh so, Tracy, do you know
Speaker 1: what money is? It's, um that thing that we all
Speaker 1: want more of. Right, that's actually a really uh that's
Speaker 1: a really good definition. Actually, I think we can just
Speaker 1: pretty much leave it at that. Oh we're done, Okay, good, Okay,
Speaker 1: great podcast. Uh No, but but in all seriousness, um,
Speaker 1: you know, money is one of these things that like
Speaker 1: every one, as you say, just sort of take for granted.
Speaker 1: We want more of it, We want to use it
Speaker 1: to buy stuff obviously, but it's surprisingly difficult for people
Speaker 1: to define or to describe what exactly it is. And
Speaker 1: some people say it's a unit of measurements. Some people
Speaker 1: say it's a medium of exchange. Uh. Some people say
Speaker 1: it has to be backed by something. Some people say,
Speaker 1: it's just this completely fictitious sociological abstract. There doesn't really
Speaker 1: seem to be any clear answer of what this uh,
Speaker 1: what money is, even though we sort of use it
Speaker 1: and depend on it all the time. Well, I was
Speaker 1: gonna say, it's kind of funny, isn't it, Because you
Speaker 1: and I obviously when we're talking about markets, we are
Speaker 1: talking about money and the ask nation of monetary values
Speaker 1: to certain assets. And then in our day to day lives,
Speaker 1: of course we are all pursuing money in one way
Speaker 1: or another. Yet we don't actually have a firm definition
Speaker 1: of it, right, And you'd think it would be a
Speaker 1: pretty big deal that we talk about all the time,
Speaker 1: but that don't know, I don't really know what it is.
Speaker 1: But we just sort of, uh, we just sort of
Speaker 1: skipped to the next part. I think usually, yeah, if
Speaker 1: we had to define our variables for every story that
Speaker 1: we write, we might be in trouble. Actually true, but
Speaker 1: it turns out that what money is is actually a
Speaker 1: really important concept, and that um errors in thinking about
Speaker 1: what money is have huge implications for society and for policy.
Speaker 1: That that people said, and with us today we are
Speaker 1: going to be talking with Eric Lonergan he's a hedge
Speaker 1: fund manager and he's also written a book about what
Speaker 1: is money? And um, it's sort of attempts to answer,
Speaker 1: at least get it an answer of what this, uh,
Speaker 1: what it really is? Great? Great, So let's bring in
Speaker 1: Eric and let's see if we can, um see a
Speaker 1: what money is and why it's worth figuring out. Eric Lonergan,
Speaker 1: thank you very much for joining us on the podcast.
Speaker 1: It's a pleasure. Joe and Tracy. I thought you guys
Speaker 1: were doing fine though without me. I'm very happy to
Speaker 1: sign off right here. So I don't know why did
Speaker 1: you write a book about what money is? Why is
Speaker 1: this an important topic? Right? Well, I guess I've been
Speaker 1: thinking about it for a long time. So there were
Speaker 1: kind of two motivations. One was to do with book writing,
Speaker 1: and then the other one was very specifically about issues
Speaker 1: around money. So I've given a talk and actually and
Speaker 1: a publisher came up to me afterwards and said, would
Speaker 1: you like to write a book about that? And it
Speaker 1: was on the sort of subject of finance and money, um,
Speaker 1: and I really didn't just want to write something that
Speaker 1: I didn't really believe in. So I've kind of been
Speaker 1: thinking about these issues for the best part of twenty years,
Speaker 1: and this was a chance to write right down the thoughts.
Speaker 1: But the other thing that became very clear to me,
Speaker 1: UM is I guess I experienced an awful lot of
Speaker 1: frustration during the financial crisis, after the financial crisis and
Speaker 1: then in the euro crisis, because particularly sitting in the UK,
Speaker 1: it's very curious that the UK's biggest industry, both by
Speaker 1: size and strategically is the financial sector, and yet there
Speaker 1: is I would say, complete lack of understanding of what's
Speaker 1: going on in the financial sector, and that was very,
Speaker 1: very apparent, And so I thought, you know, maybe I
Speaker 1: could bring those two components together to try and give
Speaker 1: some perspective and what all of these things actually mean
Speaker 1: and are about UM and at the same time bring it,
Speaker 1: make it in a way that was more relevant to
Speaker 1: people's lives and had more general implications for other areas
Speaker 1: of people's lives. And does this misunderstanding of how the
Speaker 1: financial sector works? Does it stem from a misunderstand in
Speaker 1: your view of based concepts such as what is money?
Speaker 1: I mean absolutely, so I think again, a lot of
Speaker 1: people and I remember, you know, as you do if
Speaker 1: you're if you're commuting into the city. In London, you'll
Speaker 1: overhear people talking about issues of finance, and I did
Speaker 1: hear people sort of saying, I assumed there was a
Speaker 1: safe deposit box with my deposit in it. And so
Speaker 1: I think people one of the fascinating things if you're
Speaker 1: predisposed like I am, to think about these issues how
Speaker 1: the sort of banking system works, is most of the
Speaker 1: time you completely ignore it, and it's really very very
Speaker 1: rare that it's working has become relevant to you, and
Speaker 1: I think that's one of the reasons why that people
Speaker 1: haven't given a lot of thought. So so there was
Speaker 1: there was a point about I think individuals getting on
Speaker 1: with their daily lives didn't really understand what was going
Speaker 1: on behind them, what was keeping what was the lifeblood
Speaker 1: of the economy, and we didn't really understand that or
Speaker 1: think about it until it stopped. And then the other
Speaker 1: thing I think is is that people really didn't under
Speaker 1: to policymakers, really didn't understand some essential distinctions. So to
Speaker 1: take a very concrete example that that I think is
Speaker 1: important is I think if you understand money correctly, you
Speaker 1: can't simultaneously engage in quantitative easing and austerity because it's
Speaker 1: completely inconsistent. Um And yet of course you know we
Speaker 1: saw that in in lots of countries. UM. So, so
Speaker 1: I think you had like, sorry you, I think you
Speaker 1: have this level of misunderstanding right at a very basic,
Speaker 1: everyday life level of what does it mean to have
Speaker 1: a deposit all the way through to what's been happening
Speaker 1: with with macro policy. But how much was the confusion
Speaker 1: about money and finance post the financial crisis, about the
Speaker 1: evolution of financial markets and the financial industry, the idea
Speaker 1: that everything became electronic. We had very very big numbers,
Speaker 1: Everything was sort of abstract versus actual confusion about what
Speaker 1: money is or was, say, two hundred or three hundred
Speaker 1: years ago. Because it seems like those two have kind
Speaker 1: of grown in tandem. Yeah, I think that's right, And
Speaker 1: I think I think that what's really interesting about this
Speaker 1: area is the misunderstandings go from all the way from
Speaker 1: people who have have paid very little attention to the
Speaker 1: financial sector all the way through to experts. So, for example,
Speaker 1: I find it very interesting that economists, an awful lot
Speaker 1: of economists think of money as a debt. I mean
Speaker 1: down to the point of, you know, thinking of a
Speaker 1: of a a dollar bill as a liability of the government,
Speaker 1: which I think is actually just a very basic analytical error. Now,
Speaker 1: what's interesting about that is is that you know, if
Speaker 1: you said to a cab driver, ah, does the government
Speaker 1: know you anything for your ten dollar bill, you just
Speaker 1: get an odd look. I mean, they might think there's something,
Speaker 1: they might be a bit have reservations about letting you
Speaker 1: in the cab. And their instinct is absolutely correct. It's
Speaker 1: not a liability. Um. That's that's actually crystal clear. And
Speaker 1: yet economists have have have made it a liability because
Speaker 1: in their models it's much more easy to deal with
Speaker 1: it if it's a liability, because then it's just part
Speaker 1: of the government stock of debt, and then I know
Speaker 1: how to deal with it, and I can come up
Speaker 1: with equations, and it's and and that very simple point. Now,
Speaker 1: I think Paul Krugman's made that error. Uh. And Paul Krugman,
Speaker 1: he's a Nobel Prize winning economist. Now I need to
Speaker 1: be a little bit careful saying it, because you're a
Speaker 1: bit worried saying he's made a basic analytical error. But
Speaker 1: but the logical conclusion of that leads Mervyn King to
Speaker 1: go I'm doing Quwie, but I want you to typen
Speaker 1: fiscal policy, and arguably that's a really big error. So
Speaker 1: I think you're you're You're absolutely right. You've had an
Speaker 1: awful lot of innovation and opacity complexity entered into the
Speaker 1: financial system. You've also got some really simple areas of
Speaker 1: misunderstanding which I think have deep psychological roots, probably and
Speaker 1: go back to you know what, what you and Joe
Speaker 1: were discussing right at the beginning, which is one one
Speaker 1: of these psychological discomforts, is the fact that something that
Speaker 1: is so important to us, which is money, has no
Speaker 1: value in the sense that most goods have a value. Um.
Speaker 1: It's its value is entirely I mean it's it's just
Speaker 1: a digit on a screen, um, and its value is
Speaker 1: entirely contingent on the fact that other people will accept
Speaker 1: its use. So it's intrinsically social. So you also have
Speaker 1: this very intriguing aspect with money that it goes to
Speaker 1: sometimes to our very acquisitive, selfish motivations, and yet the
Speaker 1: entire basis of it is a social basis. Yeah, there's
Speaker 1: one of the So obviously you make a point out
Speaker 1: that this error that professional economists make about thinking of debt,
Speaker 1: thinking of money as a liability of the government leads
Speaker 1: to profound policy errors. What are some of the misunderstandings
Speaker 1: that people who aren't economists have about money? And how
Speaker 1: does that, um manifest itself? How do these errors of
Speaker 1: our thinking, those of us who aren't economists, how do
Speaker 1: they How do these errors manifest themselves in our lives? Well,
Speaker 1: that's a that's a really good question, Joe. I mean, actually,
Speaker 1: I think most people's intuitions are it's a very interesting area.
Speaker 1: I think people's intuitions may well be better than the
Speaker 1: people who have studied it. So so I think people
Speaker 1: get when people start thinking about it, they're much more
Speaker 1: likely to get confused. Um. And this is what leads
Speaker 1: people to to to either assume. I mean again, you
Speaker 1: found there were people who assumed that the dollars were
Speaker 1: still backed by gold. So people, once people start to
Speaker 1: look at it, they try to seek a greater degree
Speaker 1: of meaning or a stronger basis in a sense of
Speaker 1: the money. So I think people's everyday understanding of it,
Speaker 1: which is that it's something profoundly useful and profoundly important. Uh,
Speaker 1: you know, it's not obvious to me that by by
Speaker 1: studying economics, you get to have a deeper understanding. I
Speaker 1: think where people's understanding is very weak is more broadly
Speaker 1: when you look at the financial system. So what is
Speaker 1: the role of the stock market, Why do we have
Speaker 1: stock markets? What is involved in investing? Um? These kind
Speaker 1: of what? What? What is happening within the banking system?
Speaker 1: How are deposits being created there? I think economics is
Speaker 1: extremely helpful. Um and and you know, people who aren't
Speaker 1: economists are having studied these things, uh, you know, really
Speaker 1: don't have a high degree of understanding. There's also, then,
Speaker 1: of course, a very interesting other dimension to all of this,
Speaker 1: which again economists tend to exclude. But but but normal
Speaker 1: humans for want of a better term, talk about all
Speaker 1: the time, which is the whole emotional side of these things.
Speaker 1: And so one of the things I learned an awful
Speaker 1: lot from from being involved in markets is that the
Speaker 1: human is ever present. Markets are psychological phenomena. Uh, there
Speaker 1: are groups, um there our emotions. You know, if you
Speaker 1: sit me in front of my Bloomberg terminal and if
Speaker 1: you had a little dial that could control the you know,
Speaker 1: the the SMP ticker, you could start to affect my
Speaker 1: heart rate you could probably start to affect where blood
Speaker 1: is flowing within my brain. Um And there's absolutely no
Speaker 1: doubt that these evolved, semi dysfunctional instincts become very very
Speaker 1: important when you get things like recessions or financial panics. UM. So,
Speaker 1: so I think those are Yeah. That the role of
Speaker 1: the role of emotion and psychology is is something that
Speaker 1: that that we will all talk about, but you won't
Speaker 1: find in any very rarely will you find it in
Speaker 1: an economics book. Let's take a quick break. Note from
Speaker 1: a word from our sponsor, but knowledge to work and
Speaker 1: grow your business with c i T from transportation to
Speaker 1: healthcare to manufacturing. C i T offers commercial lending, leasing,
Speaker 1: and treasury management services for small middle market businesses. Learn
Speaker 1: more at c i T dot com put Knowledge to Work.
Speaker 1: And we're back with Eric Lonergan. He's a hedge fund
Speaker 1: manager and the author of a book about money. And
Speaker 1: we're just talking about the sort of psychological elements of
Speaker 1: markets and misunderstandings about markets, and I wanted to uh
Speaker 1: talk about ask one question about this. You make a
Speaker 1: really interesting point in your book that if you were
Speaker 1: to ask people, including most financial market practitioners, what the
Speaker 1: point of financial markets is they would actually get it wrong.
Speaker 1: Most people don't understand the purpose of financial markets. What
Speaker 1: do most people say financial markets are for and what
Speaker 1: are they actually for. Well, if you take the stock
Speaker 1: market as an example, that the standard answer is it's
Speaker 1: about allocating capital. It's so diverting capital to its to
Speaker 1: its best uses now, But if you actually think about
Speaker 1: and reflect on it, that's not really why we have
Speaker 1: stock markets. So historically, the origin of stock markets, and
Speaker 1: it remains their function today, is actually about diversification. In fact,
Speaker 1: stock markets are a very early form of securitization, which
Speaker 1: is the converting something that's privately owned into tradeable securities.
Speaker 1: So if you go back in history and see why
Speaker 1: did we set up joint stock companies, was largely to
Speaker 1: facilitate trade because people wanted to diversify risk. So the
Speaker 1: idea was you had a rather risky venture if you
Speaker 1: were sending ships overseas to engage in trade. No single
Speaker 1: individual would want to commit all of their capital or
Speaker 1: they wouldn't engage in taking on that risk, and so
Speaker 1: joint stock companies were set up to diversify that risk.
Speaker 1: So if you look at actually who does the capital allocation.
Speaker 1: It's not really the stock market. Most of it is
Speaker 1: done by by companies and stuff. So what companies decide
Speaker 1: to do with retained earnings or if you are areas
Speaker 1: like private equity, you get more direct allocation of capital.
Speaker 1: But the stock markets primary function is in fact insurance.
Speaker 1: It's actually to diversify risk. So most of what financial
Speaker 1: markets are trying to do is precisely that. It's actually
Speaker 1: insurance um and insurance um at the risk of of
Speaker 1: of causing people to fall asleep. Insurance is you know,
Speaker 1: it is again a difficult area to understand, but has
Speaker 1: has been profoundly beneficial because it increases the propensity of
Speaker 1: society is to take risk if we can, if we
Speaker 1: can ensure and diversify. And so that's why in a
Speaker 1: sense you can, uh, you know, societies we may be
Speaker 1: willing to invest in much more risky things than we
Speaker 1: would otherwise be willing to do as individuals. It feels
Speaker 1: to me like those are key concepts to grasp again
Speaker 1: in the aftermath of the financial crisis, when we have
Speaker 1: a lot of investors who were risk averse, and we
Speaker 1: had a bunch of central banks who were trying to
Speaker 1: stimulate the economy through, to borrow your phrase, the allocation
Speaker 1: of capital, walk us through how that concept, getting that
Speaker 1: concept right actually has played out to post crisis. Well,
Speaker 1: I think a post crisis I would say one of
Speaker 1: the primary factors again which isn't really again talked about
Speaker 1: an awful lot, is actually a psychological one. So what
Speaker 1: I think is much more consistent with evidence rather than
Speaker 1: a lot of this talk about things like secular stagnation
Speaker 1: and why interest rates are where they at? What why
Speaker 1: why interest rates are where they are? It is in
Speaker 1: fact a more generalized risk aversion, and more even more
Speaker 1: specific than that within the financial system, is is a
Speaker 1: volatility aversion, volatility very specifically. So if you look at um,
Speaker 1: you know, for example, that the difference in pricing between
Speaker 1: more volatile assets like equities versus assets that are perceived
Speaker 1: to have very low levels of volatility, like parts of
Speaker 1: the fixed income market, there are very very elevated levels
Speaker 1: of risk premium in the in the more volatile assets.
Speaker 1: So you know, what, what does that really mean? Well,
Speaker 1: you can think of it almost like a biological organism,
Speaker 1: which is the entire system experience. It's a very very
Speaker 1: profound shock where you know, most people never really thought
Speaker 1: that their high street bank could fail. Um. They assumed
Speaker 1: that there were you know, serious people in charge who
Speaker 1: knew what they were doing, and we're in control of
Speaker 1: the system. And they discovered that all of those kind
Speaker 1: of truths were actually based on very shaky foundations. And
Speaker 1: so it's as if the organism is recoiling from that,
Speaker 1: and that is actually reflected at lots and lots of
Speaker 1: different levels. So um, and that is one of the reasons,
Speaker 1: in fact why interest rates are in fact so low,
Speaker 1: is that you have this residual degree of of volatility
Speaker 1: a version or risk aversion. So people talk about zero
Speaker 1: interest rates. Again, what's very interesting in most economic models,
Speaker 1: there's just one interest rate. In the real world, there
Speaker 1: are loads of interest rates that go into your cost
Speaker 1: of capital, and perhaps the most important is the cost
Speaker 1: of equity capital. And the cost of equity capital in
Speaker 1: a lot of parts of the world is higher than
Speaker 1: it was ten years ago. In fact, even in the
Speaker 1: United States the SMPO, as you know, is one of
Speaker 1: the more highly rated markets on a higher p multiple,
Speaker 1: it's still relative to pre crisis on not dissimilar cost
Speaker 1: of equity to where it was pre crisis. So Although
Speaker 1: interest rates on effectively cash substitutes have absolutely collapsed, interest
Speaker 1: rates on lots of other assets that affect people's investment
Speaker 1: decision making and reflect their psychological disposition are still very elevated.
Speaker 1: So the idea that there are multiple interest rates that
Speaker 1: affect the economy and so keeping benchmark interest rates ultralow
Speaker 1: might not be as effective as central bankers might want
Speaker 1: it to. You've written about that, and you're advocating a
Speaker 1: different approach to deal with that problem, right, In fact,
Speaker 1: you're advocating more money essentially. That's right. I'm I've got
Speaker 1: the twelve year old solution, which what are the problems
Speaker 1: with this solution is? It's it's it's it's simple to
Speaker 1: the point of being embarrassing. So that the problem is
Speaker 1: I think a lot of the anomics profession is very
Speaker 1: resistant to it because if it works, people are going
Speaker 1: to say, why on earth didn't you do this sooner?
Speaker 1: It's so obvious. Um. But but my observations are very straightforward,
Speaker 1: and if you want people to spend more, give them
Speaker 1: more money, um. And it really is that simple. What's interest?
Speaker 1: And so there's interesting why there's such a high degree
Speaker 1: of resistance to this as an idea, and I again
Speaker 1: I think that's largely an accident of history. So it's
Speaker 1: very interesting. I don't know, you may have seen, you know,
Speaker 1: you've just had Jackson Hole, who was reading one of
Speaker 1: the papers at jackson Hole has just had a lot
Speaker 1: of attention, was papered by Christopher Simms, who I have
Speaker 1: to confess, I think is is very guilty of what
Speaker 1: I said at the outset about making turning money into
Speaker 1: a liability of government, because then it becomes easy to
Speaker 1: do the maths or you can fit it into your models. Um.
Speaker 1: But you know, again, one of the the kind of
Speaker 1: if you read what Christopher Sims is is talking about,
Speaker 1: you have these these kind of absolutely hyper rational individuals
Speaker 1: who are expecting future fiscal policy behave in a certain way. Again,
Speaker 1: I really don't think that's the way human psychology works.
Speaker 1: And I think what what people are not necessarily motivated
Speaker 1: by expectations. I think a lot of our beliefs are
Speaker 1: based on what we actually observe. So so the idea
Speaker 1: that that you can get people to spend more money
Speaker 1: by telling them they will be in higher inflation in
Speaker 1: the future, I just don't really think is how human
Speaker 1: beings operate. People are absolutely likely to spend more money
Speaker 1: if they see their income increasing and if they expect
Speaker 1: that either to continue to increase or they then see
Speaker 1: that as their sales increasing if they're running a business. Um.
Speaker 1: So I think people actually need to see it and
Speaker 1: experience it, and that is much more likely to change
Speaker 1: what people believe and how they behave and what they think. Right.
Speaker 1: One of the arguments against, say, more aggressive fiscal policy
Speaker 1: you hear is that, well, sure people will get more money,
Speaker 1: but then somehow they'll know that in the future their
Speaker 1: tax rate will be hired they have to make up
Speaker 1: for their at spending, and therefore it won't do anything.
Speaker 1: But you say, that's not really how humans think. That's
Speaker 1: just like how humans might think on an economic model. Yeah,
Speaker 1: and it's also not obviously rational, right. So so the
Speaker 1: model in which that's true is a model where everybody
Speaker 1: is always employed, um and there's no fluctuations in our
Speaker 1: in our productivity or there's no changes in our circumstances
Speaker 1: that are that significant. So I think it's absolutely rational
Speaker 1: if you get an effective policy. So it's it's very
Speaker 1: instinct question. If I said to you, right, you're going
Speaker 1: to get if you're in Europe at the moment, which
Speaker 1: is in a quasi depression, if there was going to
Speaker 1: be corporate tax cuts and household tax cuts, income tax
Speaker 1: cuts across the whole of the Eurozone, what would you
Speaker 1: as an individual think about what the implications are for
Speaker 1: your long term tax burden. Well, if you think that's successful,
Speaker 1: it is conceivable that you would probably have quite a
Speaker 1: neutral view. You might even have the n iron view
Speaker 1: of your prospective tax burden because the world that you
Speaker 1: would then be operating in will be a very different one.
Speaker 1: Um and so there is cyclicality in an in in economics,
Speaker 1: so you just you don't have these stable paths that
Speaker 1: we model. So a lot of these into a lot
Speaker 1: of these ideas and economics are premised on an assumption
Speaker 1: that you just have stable paths, in which case you're
Speaker 1: just bringing something forward to the future. But what you
Speaker 1: actually do now may impact what the future looks like.
Speaker 1: So there may actually be grands to be a lot
Speaker 1: more optimistic about the future, in which case these things
Speaker 1: are self reinforcing. We could talk about this topic forever,
Speaker 1: but there's such there's such a broad topic. There was
Speaker 1: another thing in your book that really struck me, and
Speaker 1: it has to do with these sort of intersection of
Speaker 1: money and culture, which struck me is very relevant today.
Speaker 1: And you pointed out that money allows a society or
Speaker 1: a country to essentially import the culture of another country.
Speaker 1: So if you have a country that is has a
Speaker 1: reputation for lots of corruption and poor fiscal management, then
Speaker 1: one way to solve that is to go on the currency,
Speaker 1: say the dollar, or go on the currency of a
Speaker 1: country where uh, there's less corruption and where money is
Speaker 1: more stable. Argentina is an example. It also sort of
Speaker 1: made me think about the Eurozone with sort of um
Speaker 1: Italy having to listen to Germany who is dictating its
Speaker 1: fiscal rules. Perhaps some elites in Italy like that because
Speaker 1: they don't have confidence in their peers in Italy to uh,
Speaker 1: you know, remain to avoid corruption and so forth. But
Speaker 1: this struck me as a very powerful concept, especially as
Speaker 1: you see the rise anti globalization movements around the world.
Speaker 1: This fact that money allows for cultures to flow from
Speaker 1: one to the other more freely. Absolutely so. So one
Speaker 1: of the themes I try to explain in the book
Speaker 1: is this kind of two sides of of money, which
Speaker 1: is the inherentce into dependence and the related sort of
Speaker 1: tension in fact between markets and in many ways between nationalism. Um.
Speaker 1: So it is very if you look at people's financial activity.
Speaker 1: So I tend to think of money as being most
Speaker 1: like an institution. So David Hume, the Scottish philosopher, spoke
Speaker 1: about that these kind of three natural, naturally forming institutions
Speaker 1: of of law, language, and money, And in fact, I
Speaker 1: think the economics of money are most analogous to those
Speaker 1: of language, which is very curious and and language actually
Speaker 1: has this phenomenon as well, where of course you have
Speaker 1: common common language being used and increasingly so with globalization.
Speaker 1: But you're absolutely right. So if you think of money
Speaker 1: as an institution, um, many countries can in fact import
Speaker 1: the the institution from somewhere else. So again it completely
Speaker 1: undermines nationalism. I mean, if you think of countries that
Speaker 1: can be very proud as nations, but if their own
Speaker 1: institutions are creating financial instability, they'll adopt another currency. And
Speaker 1: the case of point of of dollarization with the use
Speaker 1: of dollars across Latin America but to in many other countries.
Speaker 1: And there's no doubt this was part of what was
Speaker 1: happening with the creation of Europe and the Eurozone. So
Speaker 1: if you look at many countries, one of the major
Speaker 1: motivations for joining Europe was effectively to import institutional credibility
Speaker 1: from outside their own country. So they were able to
Speaker 1: use this as a kind of incentive to improve the
Speaker 1: institutional structure domestically. And I think that's one of the
Speaker 1: one of the great sadnesses post the euro crisis. I mean,
Speaker 1: I firstly, I personally found the euro crisis profoundly frustrating
Speaker 1: because again I think a very simple monetary solution. If
Speaker 1: the ECB had introduced quantitative easing in two thousand and nine,
Speaker 1: when all of the central banks were doing so, there
Speaker 1: probably wouldn't have been a euro crisis. I think all
Speaker 1: of the evidence now points that direction, but certainly that
Speaker 1: in that importing institutional credibility has been deeply undermined. So
Speaker 1: if you go to countries like Italy, I remember in
Speaker 1: Italy twenty years ago, it was absolutely perceived to be
Speaker 1: the case that European institutions improved domestic Italian institutions. Whereas
Speaker 1: I think what happened after the after the euro crisis
Speaker 1: was there was a profound sense that actually there was,
Speaker 1: there was deep mismanagement in Europe that was actually causing
Speaker 1: on necessary problems in the Italian economy at very high cost.
Speaker 1: And obviously you've also then had the kind of democratic
Speaker 1: deficit that's been associated with that as well. But but
Speaker 1: there's no doubt that globalization and trade, I mean, this
Speaker 1: is very interesting phenomena in in anthropology. As you see,
Speaker 1: if you look at the evolution of trade through time,
Speaker 1: trade is premised on the fact that people are different.
Speaker 1: There'd be no point in trading if we were all
Speaker 1: the same. So in many ways that's anathema to to
Speaker 1: nationalism or two to group behavior, to tribalism. And in fact,
Speaker 1: you can see markets and ultimately money as a form
Speaker 1: of conflict resolution, which so this is I think this
Speaker 1: is the benign dimension to globalize a and there are
Speaker 1: obviously lots of costs associated with that as well, but
Speaker 1: east one sees that as a common theme through the
Speaker 1: evolution of money and trade through time. So if someone
Speaker 1: comes up to us and asks us what money is,
Speaker 1: what should we tell them? What's the sort of snappy answer.
Speaker 1: I'm glad you asked that, because I feel like we
Speaker 1: can't we can't get to the end the answer without
Speaker 1: the million dollar questions. Well, obviously we use the term
Speaker 1: money as a general reference to wealth, and when people
Speaker 1: say so and so has a lot of money, they
Speaker 1: just mean they're very wealthy. But if we want to
Speaker 1: make money distinct from other assets, which is really wealth
Speaker 1: is really about assets, be they stocks or properties or
Speaker 1: owning things. I think what is the defining characteristic is
Speaker 1: that you use it to pay for things. So so
Speaker 1: other things have if you think of that, you know
Speaker 1: your unit of account, or you think of the fact
Speaker 1: that it's got a stable nominal value, or certain times
Speaker 1: you know, if you think of notes and coins where
Speaker 1: you know you payment and settlement and clearing are all
Speaker 1: done in immediately and there's no credit risk. Other things
Speaker 1: can have those properties. But but the defining characters that
Speaker 1: the money is that you pay for things with it.
Speaker 1: I love that It's so simple. It just goes back
Speaker 1: to you know what you were saying. Even a twelve
Speaker 1: year old gets it. Money is what you use to
Speaker 1: pay for stuff with and to get make people rich
Speaker 1: or give them more money. That's right. Wow, that was
Speaker 1: really simple. Well, Eric Wondergan has been great to talk
Speaker 1: to you. I encourage everyone to uh check out your book.
Speaker 1: It's uh, I see you can download it on the
Speaker 1: kindle for It's a great read and an important topic
Speaker 1: and one I feel like we could talk about forever
Speaker 1: even though it is so simple. Thanks very much. Uh well, Tracy,
Speaker 1: I love that. I love that topic and I feel like, um,
Speaker 1: I don't know, I can't get enough of that topic.
Speaker 1: I think it was definitely a good one to do again,
Speaker 1: given that we talk about money day in and day out,
Speaker 1: and we never really talk about what money is. Um.
Speaker 1: One thing I would say, though, is like the definition
Speaker 1: it's what you use to pay for things. It almost
Speaker 1: strikes me as slightly unsatisfying. And I know that I'm
Speaker 1: overthinking it, but it's just because we have so much
Speaker 1: emotion tied up to the concept. Is Eric pointed out
Speaker 1: that reducing it to something so simple, you know, just
Speaker 1: a few words, that almost feels dissatisfying, doesn't it. It
Speaker 1: does feel satisfying. There's a great quote and I can't
Speaker 1: find it right now. I think it's from the economist
Speaker 1: John gall Braith, and he said something like the mechanism
Speaker 1: by which money is created is so simple it hurts
Speaker 1: the brain. And I think, um, that's exactly what the
Speaker 1: right like. If you it's so simple it hurts the
Speaker 1: brain because it can't be that easy. That money is
Speaker 1: just what you pay, and that we could make people
Speaker 1: wealthier by by giving people more of it. But perhaps
Speaker 1: we can the other. The other thing that I find
Speaker 1: really fascinating is sort of this idea of money being
Speaker 1: a mode of conflict resolution and money being a sort
Speaker 1: of antidote to nationalism. And it's sort of, I think,
Speaker 1: gets at why populist movements want to kill the bankers
Speaker 1: or at least tax the bankers more, because I think
Speaker 1: it's a sort of like intuitively recognizing that money allows
Speaker 1: us to import other cultures and import other institutions in
Speaker 1: a way that sort of runs perhaps counter to people's instincts. Yeah,
Speaker 1: I think that's a really important concept that doesn't get
Speaker 1: enough attention, the entwining of finance and money with globalization.
Speaker 1: It's one that we sort of always happen the back
Speaker 1: of our brains, but not necessarily in that way. Right,
Speaker 1: we know that we trade with other countries and get
Speaker 1: the goods and services and labor from other countries, but
Speaker 1: the idea of actually importing cultures and institutions sort of
Speaker 1: brings it home on a deeper level. Money is the
Speaker 1: great colonialist, I guess is one way of putting it well.
Speaker 1: Put I found the quote, the gall Braith quote is
Speaker 1: the process by which banks create money is so simple
Speaker 1: that the mind is repelled, which I think sort of
Speaker 1: like gets at this whole thing, all these concepts that
Speaker 1: we sort of try so hard to explain. It could
Speaker 1: be so simple as to be painful. All right, shall
Speaker 1: we repel ourselves from this podcast? On that note, let's
Speaker 1: do that. This has been another edition of the Odd
Speaker 1: Lots podcast. I'm Joe Wisn'tal. You can follow me on
Speaker 1: Twitter at the Stalwart, and I'm Tracy Alloway. I'm on
Speaker 1: Twitter at Tracy Halloway. And you can find Eric on
Speaker 1: Twitter at Eric Lawners. And you should check out his
Speaker 1: book and his blog Philosophy of Money dot net. Thank
Speaker 1: you for listening. Put knowledge to work and grow your
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