Book Time #13: Fake Money, Fed Money
Hey everyone,
Next month is Book Time’s one year anniversary. How time flies when you’re reading good books! To celebrate, I’d like to do a Q&A/Ask Me Anything. It doesn’t have to be about books, but I will prioritize questions that are. If you have a question you’d like to submit, just reply to this email.
As you’ve probably gathered by now, this is a passion project. The only thing that matters to me is I have fun writing it and you have fun reading it. I do nothing to promote it, badger you to Like, Subscribe, etc. That being said, I have decided that, to that end, once a year I will ask you to share it with other people who might enjoy it too.
Sharing it on social media is welcome, but it is not as impactful as it used to be due to the fracturing of audiences and algorithmic changes the platforms have implemented. Sending it to a friend, family member, book club, and other people you actually know is better and more meaningful in every way. So if you know other people who might like it, please do share it with them.
Thanks for reading!
A Nation of Counterfeiters: Capitalists, Con Men, and the Making of the United States, Stephen Mihm
A Nation of Counterfeiters is about a time when money was not real. For the first 80 or so years of this country’s history the dollar didn’t exist. Instead, banks issued their own “promissory notes,” or IOUs. In a time when getting places was hard and the economy was fickle, banks had all the incentive in the world to distribute as many notes as widely as it could and hope it would be too much of a pain in the ass for most people to redeem them. This was good for some of the banks because they’d get gold or silver in exchange for those pieces of paper. It was bad for people who got paid in those notes down the line with little practical way of exchanging them for gold or silver. So that is precisely what hundreds of banks did. But, the jig eventually always went up. Most banks collapsed in one of the various Panics of 18-Something-Or-Other, at which point the notes became technically useless instead of merely practically useless.
At the same time, rings of counterfeiters printed fake notes for those same banks, using methods ranging from ingenious to profoundly lazy. Sometimes they would just make up fake banks since there were so many and no one could keep track of them. There was no practical difference between a note from a bank that never existed and a note from a bank that used to exist.
This is a common theme, indeed the common theme, of Mihm’s brain-twisting work. In early America, the line between counterfeit money and real money was often indistinguishable. Not because the forgeries were so good—although they occasionally were—but because the system itself was a scam. You ended up with weird outcomes, like the fraud of a fraud having actual value. Counterfeits for fake banks could be more real than real money from real banks. The only thing that mattered was whether people believed it was real.
If this is all confusing, then good. It should be. Mihm does an admirable job walking us through it and he surfaced some hilarious characters to usher us among the madness. But I’d be lying if I didn’t confess to a bit of fraud myself, skimming through some of the sections on monetary policy and detailed explanations for how to create a counterfeit Greenback with a certain type of engraving printer. But there’s enough here, and enough substance to it all, I can heartily recommend the book regardless.
Students of early American history will recognize the fake it till you make it energy on display in Counterfeiters. The Alan Taylor trilogy is a Book Time favorite, but any other honest recounting of early America will give off strong dog-catches-car vibes. Now we have a country, let us figure out how to govern it. One of America’s best and worst attributes is that we have long been a nation of hustlers, counterfeiters, fraudsters and scam artists, just trying to survive the current personal or national crisis, passing bank notes and trying to get by. You don’t have to admire a time when all American money was either real or fake but no one could tell the difference, but it does seem especially relevant. A lot about civil society seems fake these days, in the sense that it was only ever real because enough of us believed it.
Secrets of the Temple: How the Federal Reserve Runs the Country, William Greider
Six hundred and thirty pages into a 700-plus page book is an odd place for the book’s best anecdote. Since I suspect very few of you are going to take my recommendation and read this doorstop of a work because it is very large and about a subject most people would label “boring,” I’ll just go right ahead and share it with you.
It is February 1985. A delegation of state legislators from 13 “distressed farm states” such as Iowa and Nebraska go to Washington to “plead for relief” from the Federal Reserve chairman Paul Volcker. Crop prices are plummeting. Farmers didn’t get enough money from that year’s crop to pay off last year’s debts, interest rates are too high to borrow more money, and the banks that loan to farmers are shutting down left and right anyways. So are the farms. It’s a calamity. This is all happening because the Fed insists on keeping interest rates sky-high. Here’s the anecdote:
In the magnificent boardroom of the Federal Reserve, the chairman listened to the farm representatives argue for easier money, for lower interest rates and an end to the price delation.
His response chilled them.
"Look," Volcker said, "your constituents are unhappy, mine aren't."
This is the book right there. Secrets of the Temple was lavishly praised when it was released in 1987. Unfortunately, it has since been largely forgotten, despite being as relevant as ever. It is Book Time’s unofficial mission to resurface these kinds of works.
That being said, the book has flaws. Greider sometimes gets carried away. If I had edited the manuscript, Secrets would not have begun with insider politics leading up to the 1980 election followed by several chapters dense with monetary theory history and explanations on how the economy works. It would have begun with the story about the farmer representatives. The entire purpose of the book is to answer the implicit question this anecdote poses: Who is the Federal Reserve’s constituency? Who does it listen to? Who does it answer to?
Secrets of the Temple did not need to be 700 pages. I could have done without the chapter titled God The Almighty Dollar, on the psycho-religious-philosophical roots of money, and particularly the pages on Freud’s connection between money and literal poop. If you do pick up a copy, feel free to lightly skim or even skip it. Some of Greider’s through-running analogies, such as the Fed chairman as The Economy Daddy (I am not kidding, this comes up over and over) and the toxic masculinity of economic policymakers, is repeated far too often and expounded on for far too long. That being said, if you have the stomach for a book on monetary policy, the insight far outweighs the drudgery.
Greider does an incredible job answering the question of how the Fed works and who it answers to, demonstrating why it is the case, and how it affects real people. Indeed, Greider has a wonderful tic throughout the book. Whenever he takes a break from discussing financial markets, he refers to the parts of the economy where people make and buy tangible things as “the real economy.” This is a book about how money literally moves—and increasingly doesn’t—what regulating that movement looks like, and the illusion that there can, even in theory, ever be such a thing as a “free market.” There are always rules governing the game and rulemakers deciding those rules. This is a book about those people, the decisions they made, and how it hurt millions of people. And it is a great companion read with A Nation of Counterfeiters, because it is also, in the end, about a bunch of guys making shit up as they go along.