The Money Masters
July 27, 2011 2 Comments
I had trouble sleeping last night and so watched ‘The Money Masters’ on the internet.I found this documentary pretty biased.But that’s not to say that the narrator didn’t make some good points.
Personally I can’t bring myself to see bankers and banking as evil.There have been and there are abuses of the banking system but that doesn’t mean we need or ought to get rid of banks and bankers.I can’t equate the fractional reserve lending of the money-changers with fraud.Also I’m not bothered by the fact that banks make money from other people’s money.In both cases the money changers/bankers are providing a service to their depositors and their customers and taking a risk in the process.Safekeeping of depositor’s money and attracting deposits and paying an interest on them costs money and lending to customers entails risk.So why not pay banks and bankers their due?After all I don’t see how modern civilization as we know it can survive without modern banks.
Usury is another matter on which I think the narrator goes overboard.I’m not certain all religions as he claims are so anti-usury.High interest rates might not be nice and definitely bonded child labour is reprehensible,but as Niall Ferguson shows usurious rates are a necessity in case of the loan sharks and individual money lenders who can’t minimize their risks with adequate diversification.The cure for the drawbacks for usury is access to more banking. After all people will always borrow from the lowest cost source.In case no one other than a loan shark will lend to a person,he/she must be a pretty poor credit risk and in some part at least to blame for a situation.In such a case the usurer is actually providing a service that on one else will.
The narrator however raises a good point when he draws our attention to the ownership of our central banks.Who determines our monetary policy and for whose benefit is a vital question. And monetary policy manipulations can make the beneficiaries indeed very rich.But even here I find it hard to believe that over the ages a very small group of bankers has taken over the monetary policy making apparatus of every country.It’s not that I contest that bankers over the years might have tried and a few more might have boasted of being able to influence monetary policy but to credit them with the ability and willingness to cause booms and busts at will is a little hard to believe.Creating a tight liquidity situation to force a fire sale in the stock market might be possible and even buying the same stocks cheap might be believable but it’s a stretch when I’m asked to believe that banks want to buy up little businesses for pennies to the pound.Banks will find it extremely difficult to run barber shops,grocer shops,haberdasheries etc.Banks just don’t have that sort of manpower.On the other hand,in normal times such businesses are great customers for banks.I find it hard to credit that bankers would act in concert to harm themselves.
On the matter of the gold standard,I accept that a country with access to a lot of gold could potentially become very powerful.Here is an example from history:The Islamic Dinar replaced the Bezant as the default world currency when African gold began to flow to the Muslim powers. Also a group of people who controlled the gold market might enrich themselves. But is this a valid reason to go off the gold standard?Personally I think not. Because today gold is mined in many continents other than Africa. Also African countries are no longer colonies.Cornering the gold market might be a bit difficult.
The narrator also seems to have a soft corner for silver coinage.Personally I have no problem with it. After all the Greek Drachma was a respected currency of antiquity.The Indian Rupee designed by Shershah was made of silver and had a good repute.Trimetallic coinage is not a new idea. The real difficulty has been in keeping the conversion ratios constant.The narrator is correct in that whatever people choose to accept as money is money.So at the heart of money is trust.When trust is intact even cowrie shells and dried yak dung might be used as money.However when people debase currency whether by tinkering with the purity of coins,changing the conversion ratios,changing the reserves maintained in a fractional reserve system,printing too many currency notes,creating too much credit in the system whether through floating bonds or extending loans that’s when trust is broken.The weak link is not so much the currency system we choose but the integrity of the people operating it.When currencies need to be used in international trade they need to be acceptable not only to the citizens of the issuing country but also to their trading partners.Personally I don’t see a Lincoln style green-back being acceptable toAmerica’s trade partners for any length of time.The Lincoln greenbacks take into consideration America’s needs but not that of the rest of the world.And no currency can be unacceptable to the rest of the world and enjoy the privileges of a reserve currency.Like it or not gold is perhaps the most acceptable currency in international commerce.Due to the scarcity associated with gold,countries might be persuaded to use SDRs but not without changes in the way the international financial institutions are operated.