UNIVERSITY OF PENNSYLVANIA - AFRICAN STUDIES CENTER
A recently published book on the history of money pays more attention to the problems of developing countries, particularly in Africa, than do most works on this subject. The author, an emeritus professor of the University of Wales, having retired does not have direct access to Internet and therefore I am posting these details to the list. (I should point out that I am related to the author - he is my father). The reference is:
Davies, Glyn _A history of money from ancient times to the present day._ Cardiff: University of Wales Press, 1994. 696 pages ISBN 0 7083 1246 2. Price #39.95 (Pounds Sterling).
In chapter 11, entitled "Third World Money and Debt in the Twentieth Century" the author describes the task of "enabling millions of the world's poorest men and women to earn a decent living for themselves" as the greatest problem facing mankind (page 596). Despite the magnitude of the problem the gaps between rich and poor nations should not be unbridgable since, as he points out "if all the countries of the world were arranged in ascending order [of wealth] there would be a continuous gradation from the poorest to the richest without any perceptible gap - more like beads on a string rather than shaky stepping stones across a stormy river. This important fact, plus the successful experience of a number of quite different countries that have been able to achieve high rates of growth over a considerable period, offers sound prospects for sober optimism, even among economists." (page 596).
However, developing countries will not be able to achieve these high economic growth rates without reasonably sound currencies. The author lays considerable stress on the effects of population changes on attempts to control the quality and quantity of money, pointing out that the population explosion of our times "has been a virtually silent explosion as far as monetarist literature is concerned. Thus nowhere in Friedman's powerful, popular and influential book _Free to Choose_ is there any mention of the population problem, nor the slightest hint that the inflation on which he is acknowledged to be the world's greatest expert might in any way be caused by the rapidly rising potential and real demands of the thousands of millions born into the world since he began his researches." (page 5).
Other causes of inflation affecting both developing and industrialized countries are listed later in this message.
Chapter 11 focusses on the monetary problems of developing countries. Its contents are listed below.
11 THIRD WORLD MONEY AND DEBT IN THE TWENTIETH CENTURY
Introduction: Third World poverty in perspective Stages in the drive for financial independence Stage 1: Laissez-faire and the Currency Board System, c.1880-1931 Stage 2: The sterling area and the sterling balances, 1931-1951 Stage 3: Independence, planning euphoria and banking mania, 1951-1973 Stage 4: Market realism and financial deepening, 1973-1993 The Nigerian experience Impact of the Shaw-McKinnon thesis Contrasts in financial deepening Third World debt and development: evolution of the crisis Conclusion: reanchoring the runaway currencies
Developments in Nigeria receive particular attention because in the author's opinion Nigeria affords one of the best examples of the process whereby former colonies established and nurtured their own central and commercial banking systems followed by their own money and capital markets. By way of contrast India and South East Asia, where several nations are in the process of leaving the ranks of the Third World, also receive fairly detailed attention. (The experience of Japan in moving from being a developing country to a financial superpower is described in the previous chapter).
The geographical focus of chapter 11 becomes more diverse when the evolution of the Debt Crisis is discussed, ranging over many other parts of the developing world too, e.g. Latin America where many of the worst cases of hyperinflation in recent years are found. The author notes the fears of some people that the problems of the former command economies of eastern Europe and their need for restructuring will divert investment by wealthy countries that would have gone to the LDCs and says that althouth these worries may have some validity in the short run, the assumption smacks too much of the `fixed sum of capital' fallacy or the false assumption of a zero-sum game.
Although some LDCs, e.g. India, Indonesia and South Korea have managed remarkably well in controlling inflation, in much of the Third World hyperinflation has strongly distorted development. Consequently Glyn Davies concludes this chapter by suggesting that "if the LDCs, in an effort to swing the secular monetary pendulum away from its inflationary extreme, were to anchor their currencies firmly once again to one or other of the northern currency blocks - the US Dollar, the Japanese Yen, or one of the strong European currencies, it would be an act, not of neo-colonialism, but of plain commonsense, soundly based on the hard-learned lessons of their own experience. Reanchoring their runaway currencies is a prerequisite for development to reach its true, more equitable, long-run potential." (page 638).
THE RELEVANCE OF HISTORY
Countries that are today wealthy once faced problems that were similar in certain respects to those of developing countries today (conversely some countries in the Third World were once much wealthier than northern Europe) and therefore there may be lessons to learn from their experience. As the author points out in his preface "around the next corner there may be lying in wait apparently quite novel problems which in all probabiltiy bear a basic similarity to those that have already been tackled with varying degrees of success or failure in other times and places."
Contribution of Developing Countries to the Development of Money and Banking.
Some parts of the world which today are regarded as being developing countries once were the centres of great civilizations. The contributions of Ancient Mesopotamia and Egypt to the development of banking and of China to the development of coinage are discussed in chapter 2. China's better known contribution to financial history - the invention of paper money - is treated in a later chapter which also deals the plundering and exploition of the gold and silver of Central and South America and its effects on the economies of both Europe and China.
Primitive Forms of Money
Various other developing countries are also discussed in chapter 2 since the use of primitive forms of money in the Third World and North America is more recent and better documented than in Europe. Among the topics treated are the use of wampum and the custom of the potlatch or competitive gift exchange in North America, whales teeth in Fiji and disc-shaped stones in Yap, cowrie shells over much of Africa and Asia, and cattle.
The author points out that primitive money can be subject to some of the same problems as modern forms ad discusses the five-hundredfold depreciation in the value of the cowrie shell in Uganda following the wholesale importation of such shells in the mid-nineteenth century, and a similar although not quite so drastic fall in teh value of wampum in the USA following the introduction of mechanized drilling and factory assembly of wampum in New Jersey in 1760.
In describing how cowries were used in quite recent times Glyn Davies refers to the personal experience in childhood of one of his former students, Dr. G.O. Nwankwo who "later became the first professor of banking and finance at the University of Lagos and an executive director of the Central Bank of Nigeria and chairman of one of the country's largest banks, in which capacities he has represented his country abroad at OPEC and similar conferences - from cowries to petro-currencies in the course of a single career." (page 35).
Cattle are described by the author as mankind's "first working capital asset" and he observes (page 43) that in Africa attachment to cattle as a store of wealth has deletrious environmental consequences making the development of monetary systems and institutions that satisfy the needs of the rural population even more important. It is interesting to note that linguistic evidence indicates that in ancient times cattle were similarly valued by European peoples. Thus, as Glyn Davies points out, the English words "capital", "chattels" and "cattle" have a common root. Similarly "pecuniary" comes from the Latin word for cattle "pecus" while in Welsh (the author's mother tongue) the word "da" used as an adjective means "good" but used as a noun means both "cattle" and "goods".
INFLATION AND THE LESSONS OF HISTORY
The author identifies five, not necessarily mutually exclusive, causes of inflation which are listed below. One of these, the Population Explosion was discussed earlier in this message. It is clearly a bigger threat to developing countries than to the industrialized world but, at present, all the forces listed below (apart from cause 2 which depends on an inherent property of money) tend to be more acute in developing countries (and some former communist countries) than in the affluent West.
1. Conflict between the Interests of Debtors and Creditors.
The history of money is one of "unceasing conflict between the interests of debtors, who seek to enlarge the _quantity_ of money and who seek busily to find acceptable substitutes, and the interests of creditors, who seek to maintain or increase the value of money by limiting its supply, by refusing substitutes or accepting them with great reluctance, and generally trying in all sorts of ways to safeguard the _quality_ of money." (pages 29-30).
"...it is of the utmost significance to realize that because the monetary pendulum is rarely motionless at the point of perfect balance between the conflicting interests of creditors and debtors, so money itself is rarely `neutral' in its effects upon the real economy and upon the fortunes of different sections of the community..." (page 32)
"...the market gives no priority to posterity or the poor." (page 654)
"In the normal course of events money is rarely `passive' or `neutral' while the safe haven of equilibrium on which so much economists' ink has been spilled...is equally rarely attained." (page 655)
2. The Fungibility of Money
"Money is so useful - in other words, it performs so many functions - that it always attracts substitutes: and the narrower its confining lines are drawn, the higher the premium there is on developing passable substitutes." (page 25).
In a discussion of the invention of money the author says: "Money has many origins - not just one - precisely because it can perform many functions in similar ways and similar functions in many ways. As an institution money is almost infinitely adaptable." (page 27).
"Money is by its very nature dynamically unstable in volume and velocity, in quantity and quality." (page 29).
Money's adaptablility is chameleon-like. "Money designed for one specific function will easily take on other jobs and come up smiling. Old money very readily functions in new ways and new money in old ways: money is eminently fungible." (page 29).
3. The Population Explosion
The author's views on the inflationary impact of the population explosion have already been discussed. However, population pressures have had an effect on inflation in previous ages too, e.g. the so-called "Price Revolution" in England in the period 1540-1640, and the author also discusses that and the effect of the _reduction_ in the population of Europe caused by the ravages of the Black Death.
4. The Military Ratchet
"The military ratchet was the most important single influence in raising prices and reducing the value of money in the past 1,000 years, and for most of that time debasement was the most common, but not the only, way of strengthening the `sinews of war'." (page 643)
The financial consequences of Alexander the Great, the rise and fall of the Roman Empire, the Viking assault on England, the Norman Conquest, the Crusades, the Hundred Years War between England and France, the Spanish conquest of Mexico and Peru, the aftermath in Britain of the Napoleonic Wars, the U.S. Civil War, and the financing of the two World Wars are all treated.
The importance of war as a cause of inflation increased with the adoption of paper money in the west.
"When modern paper money release prices from their metallic anchors, the military ratchet began to be seen at its most powerful...The `Continentals' of the new USA fell in value by the end of the Revolutionary War to one-thousandth of their nominal value, a process repeated by the Confederate paper which similarly became worthless by the end of the Civil War. The assignats of the French Revolution and the hyper-inflation of the German mark between 1918 and 1924 are simply among the best known of hundreds of examples of war-induced inflation." (page 644)
5. The Developmental Money Ratchet
"Second only to war as an engine of inflation is the general acceptance of the need for an ever-expanding supply of money in order to facilitate economic development, a belief which in a weaker and vaguer form long preceded the Keynesian revolution, though it was the Keynesian ratchet which acted as a strong causative factor in the unusually high peacetime inflations of the second half of the twentieth century." (page 644) Glyn Davies cites Sir William Petty and John Law, "the Keynes of the early eighteenth century", in this regard and discusses the fiasco of the Mississippi Bubble.
However, he also points out that in certain circumstances this ratchet can work and says "however much the Keynesian revolution may be condemned for its long-run consequences of high and stubborn inflation, Keynes's enormous success in providing cheap finance for the Second World War and in being largely responsible for the inestimable benefits of full employment for the first post-war generation, i.e. for its short- and medium-term benefits, should not be forgotten." (page 645).
As a result of the above-mentioned factors the supply of money tends to alternate in every age between too little and too much, with the pendulum swinging from excessive concern with the _quality_ of money to the opposite extreme of an inflationary, excessive _quantity_ of money.
This is the basis of the author's Pendulum Meta-Theory of money, i.e. a "general theory comprising sets of more limited, partial theories, which spring out of the special circumstances of their time. The enveloping pendulum or metatheory also explains why the usual theories of money, despite being so confidently held at one time, tend to change so drastically and diametrically (and therefore so puzzlingly to the uninitiated) to an equally accepted but opposite theory within the time span appropriate to historical investigation." (page 31).
In support of these claims Glyn Davies ranges widely, both chronologically, from the dawn of civilization about 3000 BC onwards, and geographically from China to the New World, Denmark to Fiji. The development of financial policy and institutions in Britain, the United States, France, Germany and Japan is traced up to the present day and, as described above, the monetary problems of the Third World are also considered.
Thus a huge range of evidence regarding the causes of changes in both the _quality_ and _quantity_ of money is surveyed and the author concludes with the words of the Russian novelist Dostoevsky that:
"Money is coined liberty."
Author: Emeritus Professor, University of Wales: Economic Adviser, Julian Hodge Bank Ltd. Former positions: Sir Julian Hodge Professor of Banking & Finance and Head of the Department of Economics & Banking, UWIST, Cardiff; Senior Economic Adviser to the Secretary of State for Wales; Economic Adviser and Director, Bank of Wales; Chairman Wales Careers Advisory Council; Hon. Vice-President and Secretary Cardiff Business Club; Senior Lecturer in Economics, University of Strathclyde.
ORDERS The book may be ordered through good bookshops anywhere but the suppliers listed below are particularly good sources:
United Kingdom. In stock now at: Bankers' Books, 17 St. Swithin's Lane, London EC4N 8AL tel. 071 929 4306.
*** North American orders ***: Books International Inc., P.O. Box 605, Herndon, VA 22070, U.S.A. tel. (703) 435 7074.
Other Countries: From the publisher - University of Wales Press, 6 Gwennyth Street, Cardiff CF2 4YD, Wales, UK. tel. 0222 231919 FAX 0222 230908
****************** Roy Davies Telephone 0392 263884 The University Library FAX 0392 263871 University of Exeter Stocker Road Internet Roy.Davies@exeter.ac.uk Exeter EX4 4PT UK
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