Time to Rethink Money
Once this crisis is over, historical judgment will focus on how well the people in charge, politicians and economists, addressed it. We economists in particular shall be evaluated according to our thoughts and deeds. Today, however, the mounting cry seems to be: "Remain silent, o economists, solving the crisis is no longer your business." The task of reforming the financial system should be taken away from professional economists and entrusted to politicians only. Italy's finance minister, Giulio Tremonti, went even further by stating that: "We shouldn't mark the boundary betwen the market and the state," but "set the line between what's ethical and what's not" (Il Giornale, 1 October 2008). This is a tall order, which merits being discussed.
It recalls the caveat thrown at theologians in the 16th Century: "Silete theologi in munere alieno," meaning: remain quiet, you moralists, on a task that is alien to you, i.e. don't interfere in politics. In this regard, Keynes, almost forgotten until a year ago and now in everybody's mouth, famously wrote in 1932: "For the next twenty-five years in my belief, economists, at present the most incompetent, will nevertheless be the most important, group of scientists in the world. And it is to be hoped – if they are successful – that after that they will never be important again."
Given the steady growth in the economists' political and ideological importance from the 1940s until the present crisis, we should thus concur with Keynes that they were not successful at their task. But what is the task? It is not teaching governments how to spend money they don't have. This is an art states have known since their inception in the early modern age. Financial markets, ensuring borrowing by governments in exchange for rent and economic growth, came into existence for this very reason in England in the late 1600s.
The inundation of financial markets with dollar liquidity which is at the root of this crisis was made possible by the crucial relation that money creation has had with the expansion of US private and public debt. The "Greenspan put" made the rise of Internet and Google and the escalation of US military spending both possible. This follows from the warped logic taken by the international monetary system since Bretton Woods, which sustained the American capability of fighting a cold war while sustaining hot growth: the so-called Golden Age of capitalism (1945-1973), what the French refer to as les Trente Glorieuses.
The fundamental task in which the economists have failed at is instituting that public good par excellence which is money. Bretton Woods did not succeed in completing such task, in spite of Keynes's correct view of the problem. Today, we really do need the "new Bretton Woods" that is as often invoked as seldom fleshed out. If as economists we managed to conceive an international currency which is not a commodity, but simply a measure of exchange, we would have performed a politically crucial task. Which is not setting the boundary between what is ethical and what is not, but between what is economic in nature and what is only apparently so.