I myself have studied economics, and hope that no one else would wish such a science upon themselves, unfortunately economics is like war. You might not be interested in economics, but economics is interested in you. It kills, and will no doubt grind up many people and governments sooner rather than later. There have been so many books written about economics, many being dry, charmless, byzantine and often wrong.
The few economics books, that challenge such modern day orthodoxies chapter after chapter with clarity and elegance in theory, are certainly worth their money. Both The Dollar Crises(2003) and The Corruption of Capitalism(revised 2011) by Richard Duncan happens to be two.
Duncan presents us with a clear argument concerning economic history over the last 100years of boom-bust cycles. In The Dollar Crises, he begins his argument from World War 1, where many of the war contenders, remove or partially remove the gold standard backing their currency, allowing for an expansion of credit and government debt. Under normal trading conditions, in the previous 18th century, gold provided the needed adjustment mechanism for the trade surpluses and deficits among the nations to balanced out. Short, quick and mild corrections in credit would occur as the treasuries reserves would fill or deplete with gold. For example, if a nation accumulated too much gold from exporting more than it imported, the extra gold reserve within the system would expand credit and consequently consumption. This would be followed by a slowdown in production as the nation begins to import more than it exports. Eventually the larger imports deplete the gold reserves. The opposite set of forces would work for nations low in gold reserves, they would begin to export more than they import. Ultimately trade would balance, until of course, the removal of the gold standard. The credit expansion and subsequent government deficit spending during the warring years in Europe, created a torrent of capital that flowed out of Europe and into the trade surplus nation of the time, America. This torrent of credit, normally would be unsustainable with a gold standard, gold would have left the european nations, but because of the fiat nature of the credit this trade balance, it continually expanded.
The roaring 20s was a direct effect of the removal of the gold standard by warring European nations years prior. Ultimately the credit inflationary bubble of the 20s had to pop, which it did with the great depression. The expansion of credit, eventually overwhelms the ability of consumers of this debt, to service it. It’s at this point that the bubble deflates with deleveraging, bankruptcy and liquidation of mal-investment over-capacity. This of course sounds all too familiar in 2011, and that is precisely Duncan’s point, all boom bust cycles since have had the same features of trade and financial account imbalances, brought about by fiat currency, and government deficit spending.
After the Great Depression and World War 2 there was international recognition that the gold standard was broken and that a new international monetary reserve was required for the adjustment mechanism. The bretton woods system was created, using the us dollar as the worlds reserve for trading. The US dollar was backed at $35 an ounce of gold. Other countries then pegged their currencies to the US Dollar. The Bretton Woods system was in effect an indirect gold standard. This New system ultimately broke down when Nixon finally severed the last traces of gold backing the US dollar, by closing the gold retail window. Since then we are in the midst of the dollar standard. The Latin America banking crises, the crash of 1987, the Asian financial crisis of 1997, the nasdaq dot.com bubble, the Argentinean hyper-inflation and now the Global Financial Crises can all be attributable to the dollar standard and its effect of creating enormous amounts of credit. The credit must find profitable ventures, it is metaphorically like water sloshing around in a bathtub, inflating economies and markets and then pulling out with a collapse in asset values and the banking system, when the debt burden of the credit cannot be repaid. What we have is a clear economic narrative, and not separate isolated events with independent causes and efects as many economists would have you believe. It is this economic narrative that Duncan explains clearly that finally provides for the reader the real reason for all economic and financial crisis for the last 100 years, and especially the last 40.
The Corruption of Capitalism is a broader less detailed overview of The dollar Crises, its real value is that it was written and revised in 2011, so we have Duncan’s opinion on the responses and effects of the Global Financial Crises since it broke in 2007. Most of which Duncan is very gloomy about.
Duncan concludes, that the only response to a great worldwide depression would be deficit spending on the order of trillions of dollars a year, for many years to come. The US is capable of doing this, even with its now 14 trillion of national debt. However, he adds a caveat, that the spending must be on revolutionary technologies that restore American competitiveness and production and not on white elephants and bridges to nowhere. Many economist and myself, will find this Keynesian solution far too optimistic. I believe that this is probably the only weakness of the book. Governments tend to be horrible at picking winners. Currently we have the Solyndra story as an example. I should also add that any such grand man-on-the-moon government project will be looted by contracting bureaucrats and pork-barreling politicians. Ironically, the scale for corruption would be immense.
Both of Duncan’s books should be apart of any future educational curriculum and certainly and up there with Reinhart and Rogoff’s This Time is different: Eight Centuries of Financial Folly. Non-economist or financial types will find these books relatively easy to read and should not be deterred. As I said at beginning of my review about books on economics, this is as good as it gets.