February 24, 2017
The Money Problem
I recently read The Money Problem: Rethinking Financial Regulation by Morgan Ricks (University of Chicago Press 2016). While it is not a book for the financially faint of heart, it does provide a great introduction to what money is and what banks and other financial intermediaries do. The back matter reads,
Years have passed since the world experienced one of the worst financial crises in history, and while countless experts have analyzed it, many central questions remain unanswered. Should money creation be considered a ‘public’ or ‘private’ activity—or both? What do we mean by, and want from, financial stability? What role should regulation play? How would we design our monetary institutions if we could start from scratch?
In The Money Problem, Morgan Ricks addresses all of these questions and more, offering a practical yet elegant blueprint for a modernized system of money and banking—one that, crucially, can be accomplished through incremental changes to the United States’ current system. He brings a critical, missing dimension to the ongoing debates over financial stability policy, arguing that the issue is primarily one of monetary system design. The Money Problem offers a way to mitigate the risk of catastrophic panic in the future, and it will expand the financial reform conversation in the United States and abroad.
I particularly recommend Part I to those trying to get their hands around money (the concept, not hard currency itself) and how it is created. Ricks reviews the “standard textbook description” of bank money creation and others’ account of it before providing his own “modified story.” (58-59)
Parts II and III provides a far-reaching blueprint for reforming the monetary system. This reform agenda is not without its critics, but I think Ricks gives a fair reading to competing views so you can make up your own mind as to who is right.| Permalink