My favorite books if you didn’t think money matters

Nobel Prize winner Milton Friedman brings to life an incredible variety of experiences, ranging from the stone money used in the Micronesian island of Yap to lessons on the path to European monetary union. 

This book is also a perfect starting point for learning how money issuance affects prices and the economy. In chapter 2, Friedman provides an incredibly intuitive explanation of how increased money issuance harms people by making their existing holdings less valuable. The scope for monetary actions in one country having profound effects on others is illustrated in chapter 7, which lays out connections between US silver purchases in the 1930s and the victory of communism in China.

There is rich and abundant proof of Friedman’s famous adage that “inflation is always and everywhere a monetary phenomenon.

Sargent shows how the monetary excesses leading to inflation have often been connected to using money to cover government budgetary shortfalls. This is vividly illustrated in chapter 3 by the way that ending the post-World War I hyperinflations required fundamental fiscal as well as monetary reform. 

Sargent also convincingly demonstrates the power of expectations and the idea that, as government behavior changes, people’s behavior adjusts as well.

You really cannot argue with the Ancient Chinese proverb included on the first page: “The government has strategies. The people have counterstrategies.” Amidst the rich trove of historical cases, my favorite remains chapter 6’s interpretation of the interactions between President Ronald Reagan and a recalcitrant US Congress in the early 1980s as a “game of chicken.” 

This book not only offers an authoritative account of what the Federal Reserve has been up to since its founding in 1913 but also the rationale for why they did what they did. 

One particularly telling observation is made with respect to Arthur Burns, who was the Federal Reserve Chair during 1970-1978: “Burns always attributed [inflation] to nonmonetary sources.” Paul Volcker’s actions during 1979-1987 demonstrated how the restoration of monetary stability was a sine quo non for ending the 1970s inflationary spiral. No matter how necessary the Federal Reserve’s later massive 2020 monetary expansion may have been, it was imperative that this bulge in money also be unwound. 

A worrying element, however, is that, in the midst of all this, none of today’s Federal Reserve policymakers “ever mentions money.”

The enduring impact of Milton Friedman and his writings is ably captured in this volume.

Part II focuses on his monetary contributions and relates his writings to the policy actions of the Federal Reserve and many other recent and older episodes. Among these chapters, James Lothian offers a particularly compelling account of not only the evolution of Friedman’s work but also its impact on those around him. Eugene Lerner connects his Friedman-inspired early Civil War research to monetary developments after the global financial crisis in 2008. 

Nobel Prize winner Robert Lucas makes a particularly revealing personal observation: “Friedman has no interest at all in what side you are on. You are expected to articulate a view of the effects of policies. How will it work? Who gains? Who loses?”

In the west, China is often perceived as a recent entrant onto the world stage.

The sweeping historical perspective of this book quickly disavows any such notion. Horesh presents evidence of the significant circulation of Chinese coins across Eurasia under the Tang dynasty (618-907). This subsequently expanded to include India and Sri Lanka and even reached East Africa under the voyages of Zheng He (1371-1453). Horesh cleverly weaves the evolving situation in China over the centuries with that of the rest of the world and so the reader ends up with much more than just a Chinese-based history.

Perhaps the biggest takeaway, however, is that a global role for China's currency in the modern era would be no more than a return to the position it occupied in past epochs.