Most Helpful Customer Reviews62 of 63 people found the following review helpful: 5.0 out of 5 stars
An effort but definitely worth the effort - could be huge, September 14, 2011 I agree with the bit on the cover of this book where it says that this is not an easy read. For me, it has not been, and not just because the truths Schlichter spells out and explains are so not-easy to take. I am a huge fan of his, and have been ever since I first heard him talk about the analysis in this book in London about a year ago, but he makes me work hard. This book is heavy on logical exposition, much lighter on diverting anecdote. For the latter sort of Schlichter stuff, you must read his
blog.
One way to describe Paper Money Collapse might be to say that it is the sort of book that the great Austrian School economist and economic historian Murray Rothbard might have written, had he lived a bit longer. Last year I read Rothbard's Man, Economy and State. While doing this, I kept hoping that I would read a theoretical analysis of our current financial woes, as opposed merely to Rothbard's general take on Austrian Economics as a whole. I realise that this was a lot to ask of a book published several decades ago, and not surprisingly I was, although in general much educated, largely disappointed on that particular count. Well, what I was only hoping to read in that Rothbard book was what I did read in Detlev Schlichter's much shorter book, which I heartily recommend to anyone willing to really get stuck into it. Here is a conceptual analysis, in very much the painstaking Rothbard manner, of how non-commodity-backed currencies behave when they collapse, and why they do collapse, always, inevitably. In other words it is about the times we now live in.
I learned a lot from reading Paper Money Collapse. In particular, Schlichter has convinced me of the wrongness of the argument that since we want economic activity in the world to increase indefinitely, but gold is, barring a few trivial further discoveries, fixed in quantity, gold won't work as the basis of currency. But non-elasticity is exactly why gold is such a good basis for currency. Totally elastic money, on the other hand, inevitably collapses, always and everywhere. Why should our elastic money be any different?
Schlichter is not pointing the finger at individuals. This is not a detective story, where in the final chapter all the suspects are rounded up and Herr Schlichter points the finger at the guilty man. President Nixon's decision to break the final link between the dollar and gold is deplored, and Ben Bernanke's recent pronouncements are likewise disapproved of, but many of the decisions that lead to our current mess were made many, many decades ago, and by their nature they are the kind of decisions which are far easier to make than they are to reverse and clean up after.
Nor does Schlichter believe that hyper-inflation now threatens us all because central bankers are unaware of the badness of hyper-inflation. They know that hyper-inflation is bad. Unfortunately, they also know that if the collapse that Schlichter describes occurs while they are in office, then that, for them, will be even worse than a bit more inflation or even quite a lot more inflation. So, they carry on printing money and postponing the resolution of the problem, which means that when nemesis does finally arrive, it will be all the worse. But, says Schlichter, they know what they are doing; they just don't know how to stop. Schlichter telling them to stop will accomplish nothing.
I suspect that Schlichter may be being rather kind about just how plain stupid some even quite high ranking central bankers now are, but clever or stupid, these people are now thoroughly boxed in by their previous decisions and by the decisions of their predecessors of earlier years and decades.
I have been using the phrase "paper money", as Schlichter himself does in his title. But as we all know, when central bankers now create yet more money, they are mostly putting numbers in electronically managed bank accounts. It is not the printing of bank notes that is the problem; it is the lack of a commodity base to control the process. By the same token, paper bank notes that refer to a currency that is solidly based on something like gold would be fine. But I am sure that Schlichter has thought long and hard about this phrase, and I gladly defer to his decision to call it "paper currency" in his title. I certainly don't know a better way of putting it. "Fiat" money? "Elastic" money? (That's the phrase that Schlichter switches to in the subtitle, also prominently displayed on the front cover.) Both are a bit more accurate than "paper" money, but are also a bit less attention-grabbing for the kind of intelligent and educated everyman whom Schlichter is trying to reach. "Paper" gets over the gist of the problem pretty well, I think. And you start learning what that means as soon as you read the sub-title.
When it comes to Schlichter's pessimism about him personally having any influence on the conduct of public policy, I agree with him, in the short run. But I think he may be proved wrong, in the longer run. I agree with him that there is nothing much he can say to the people now in charge of financial policy that will persuade them to do the right thing now, which basically means getting the collapse over and done with as soon as possible. But when this collapse starts seriously happening anyway, in just the manner and for precisely the reasons that Schlichter says, he could then become a very Big Cheese, as we say in my native England. In fact, if this book does half as well as I suspect it may, Schlichter will probably be accused, by various paper (fiat, elastic) money idiots who know only the title of this book but nothing of what it says, of having precipitated the catastrophe he describes. But other people, including politicians and central bankers, could also then be asking him: So, Schlichter, what the hell do we do now? I urge Schlichter to be ready for this moment. Suggested title for his next book: Now What? (Presumed answer: Let non-state controlled and non-state backed bankers supply currency, which they will back with gold. Get out of their way and let them get on with it.)
Meanwhile, I urge anyone who thinks that he might find this book enlightening, and helpful for personally navigating through the mess, to go ahead and be enlightened. I think this book may become very big. It certainly deserves to.
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24 of 24 people found the following review helpful: 5.0 out of 5 stars
An excellent description of the folly of "elastic" money, October 7, 2011 This book is not comforting reading, nor is it always easy to read. You have to concentrate. But it is a "must-read". For me, one of the most valuable insights of this book is how it explains how the general price level in an economy can appear to be stable but that injections of fiat money into the system can derange relative prices for consumption, intermediate and production goods. This point is vital. It explains why those central banks, such as the Bank of England, got dangerously complacent in the 90s and noughties when the inflation targets they had been set appeared to behave. But all the while, the surges in money supply growth created a bloated financial sector and property market bubble.
He also rebuts the argument, sometimes used by opponents of commodity, or "inelastic" money, that a growing economy needs a growing supply of money to ensure stability. Untrue. At most, an expanding economy, with growing innovation, division of labour and productivity growth, should see a mild deflation over time (which is good for people who want to save by holding cash). But as Schlichter explains, there is no reason in logic or evidence why a mild price deflation should hamper economic progress once people get used to the idea that their money will buy a rising stock of goods and services through time. He uses the analogy of computers. In recent times, the hourly wages needed to buy, say, a mobile phone have slumped. Has that stopped people from going out and buying these devices? Of course not.
Schlichter's explanation of how fractional supply banking works is crystal clear and, in my view, he explains it slightly better than say, Murray Rothbard did in his The Mystery of Banking, although the latter book is still well worth reading. And Schlichter's style is more sober and less brash in its tone than the approach adopted by Thomas E Woods in his book about the crash, although Woods' explanation of Austrian business cycle theory is pretty good.
All these books are useful for driving home key points about how we have arrived in our current pass. Schlichter, precisely because he used to work in the investment management business for so long, speaks not as an ivory tower academic, but as someone who has been on the practical side of finance. He knows that much of what appears to be "free market banking" is anything but; in fact, as he describes it, much of what now goes on in Wall Street, the City or wherever is a hybrid of market and state planning. In its way, it is profoundly corrupt. Schlichter also mentions how such a large chunk of the economics profession is locked into the philosophy that drives the current system - without it, many of these people would have to do something else for a living.
Perhaps the scariest part of his book is when Schlichter points out that the derangement of the capital system in the West is worse than in the late 1970s, when the-then Fed chairman, Paul Volcker, pushed up interest rates to record highs to purge some of the malinvestment and rottenness from the system. The cigar-chomping Volcker was a brave man, and he had the support of the-then presidents Carter and Reagan (Carter sometimes needs more credit than he gets). I cannot see any such central banker now receiving such support for this sort of thing. Instead, we've got ourselves "Helicopter Ben".
Paper Money Collapse is one of the best books to come out of the financial crisis, maybe the best so far.
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19 of 19 people found the following review helpful: 5.0 out of 5 stars
Required reading as we lurch towards the endgame, October 10, 2011 This book is a classic monograph about the real world consequences of various historical monetary systems and the ideas drawn on for their creation and maintenance. At root is this question:
Is society made better off by giving control over its medium of exchange - our communication mechanism to our fellow human beings about our desires for goods and services - to a single organization, and then giving that organization our consent to create additional units of that medium at its sole discretion, using them to purchase whatever it wants from whoever it wants to?
That's the system we have today. All over the world. The author argues, and offers proof that convinced me, that the answer to that question is a resounding "No!"
But you can't beat something with nothing, so the author also makes a convincing argument that using a commodity with certain properties is our best choice - best in the sense of doing what money is supposed to do: communicate clearly to our fellow human beings what goods and services we desire - for a medium of exchange.
I urge you to read the book and think about its arguments. As our system lurches towards its endgame, you would be wise to be armed with an understanding of how we got here and what we can do about it.
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