Our Review of Michel Aglietta’s ‘Money: 5,000 Years of Debt and Power’

Michel Aglietta, most famous as the co-founder of the regulation school of economics, has written Money: 5,000 Years of Debt and Power. As the title suggests, it’s a bold exploration of the history of money and, by extension, finance in general. The book demonstrates that money not only shapes economics but society itself.

Aglietta starts off by giving a brief history of money and commerce. He dispels the myth of the prehistoric bartering system of the “pre-money” era of humanity that everyone was taught in school. There’s no archaeological evidence that bartering was ever the standard for commerce. As the book title reminds us, items such as shells have been used from antiquity as a currency in societies that haven’t mastered metalwork. The start of the Bronze Age around 5,000 years ago ushered in both a rapid rise in industrialization and the use of metal coinage as a form of payment for increasingly large and cross-border transactions. A coin’s makeup of gold or silver determined its value in a manner that served as a consensus in the ancient world.

Over time, however, money became more complex due to war and trade. Indebted men often had to end up selling their wives, children or themselves into slavery to pay off their debt. Thus, “[Athenian statesman] Solon carried out the first monetary reform. This was an effort in Athens before the end of the 6th century B.C., in an effort to alleviate the poor peasants’ debts to the landowners. According to Plutarch’s account, Solon reduced the value of these debts by 30% by devaluing the drachma by this same proportion.” Monarchs started to unilaterally re-value their currencies or mint lower-quality coins to fit the needs of the state.

One of the foremost determinants of currency value in the pre-modern era was the availability of gold and silver. If a ruler lost access to mines or the means to buy precious metal, then financial disaster would likely ensue. Conversely, striking gold literally would be the same as striking gold metaphorically. Britain, France and especially Spain became fabulously wealthy in the colonization era by stealing gold and silver from Africa and the Americas.

Ironically, this “dual standard” of gold and silver would also create instances of incredible currency volatility. Spain brought back so much silver from the Americas that it massively deflated the value of silver, which ultimately caused lasting economic harm to Spain. Too many or too few coins in a country’s circulation can have ripple effects around the world.

‘Money: 5,000 Years of Debt and Power’ by Michel Aglietta. 432 pp. Verso

Thus, Dutch and British economists started to move the global market towards the scriptural system during the Enlightenment. Increasingly complex financial instruments, such as interest-bearing business loans, were developed by merchants in Amsterdam and London. “A purely metallic [bullion] system creates money on the basis of a pre-existing and prior source of wealth: the metal that has already been extracted from the ground. On the contrary, the creation of scriptural money by issuing debts transferable to third parties is only valid if these debts can ultimately be settled. They’ll only be settled if the issuer has acquired some value that allows it to honor the debt. Money is thus created on the basis of anticipated future wealth.” Modern finance was thus born, fuelling colonial commerce and industrialization.

The book spends the bulk of its attention exploring the post-WWII “Bretton Woods” era of finance, in which the gold standard was replaced by the current supremacy of the US dollar. This has had profound impacts on everything from diplomacy to Third-World development to Middle East conflicts via the “petrodollar.” Dollar primacy in the global economy walks hand-in-hand with the US’ laissez-faire attitude towards the regulation of banking institutions and other market actors. Aglietta expresses some reservations with this status quo. For instance, he writes, “The tendency towards growth in international capital movements hasn’t had a positive effect on long-term growth… Studying a wide sample of developed and emerging countries, Dani Rodrik & Arvind Subramanian have shown that opening finance up internationally had no effect from 1985-2005. More recent Bank for International Settlements studies conducted by Stephen Cecchetti and Enisse Kharroubi have even suggested that the opening up of finance had a negative effect on global productivity.”

With the Great Recession and the current political and currency instability in the US, Aglietta argues that the world needs to move past the dollar standard. Certain millennial economists might offer up cryptocurrencies as a savior for global commerce. Aglietta is bearish on this proposal; he writes, “Bitcoin is nothing but a disembodied monetary instrument…detached from any notion of the public good and disconnected from any sovereign authority that might guarantee its liquidity and perennial endurance. Bitcoin maintains the illusion of a virtual community through the networks of those who promote & exchange ideas about it, but it is not supported by any hierarchically organized banking system overseen by a central bank or by a clearing system that would allow the lasting sustainability of payments to be guaranteed.” The euro could arguably be a suitable replacement for the US dollar, but Aglietta is likewise pessimistic. He writes extensively about the limitations of the euro and the European Central Bank. Since the euro is a non-sovereign currency, it has severe limitations in terms of revaluation and addressing financial crises, among other issues. He’s slightly less pessimistic about the renminbi. For an interesting overview of the renminbi’s long-term prospects as a global currency, read the final chapter of this book, then compare it to the renminbi chapter of George Magnus’ Red Flags: Why Xi’s China Is in Jeopardy.

His proposal is for a system called special drawing rights (SDR). It’s essentially a global Central Bank that sets universal banking standards, ensures liquidity in cases of a recession or depression by acting as a last-resort lender for national banks and offers better access to credit for developing countries. Many of these problems were supposed to be addressed during Bretton Woods negotiations and later by the formation of the IMF; Aglietta writes about why these initiatives failed.

Aglietta firmly lays out the case for the centralization of authority in Money. He bemoans the impotence of current banking institutions and the competing exchange rates and financial policies of different nations. On the climate crisis, Aglietta writes, “Biodiversity and climate change are the two great environmental fields that appear as public goods and are therefore impossible to substitute for forms of capital produced according to market-based incentives.” He expresses optimism in a future where markets are regulated more efficiently and there’s a lot more coordination between different banks and nations to address financial crises and manage inflation and exchange rates.