Money – Chapter 12

These are my notes for the K5M Book Club on the book Money, by Jacob Goldstein.

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Chapter 12: Money is Dead. Long Live Money

It’s interesting how banks would close their physical space and it would cause such a huge crisis. I haven’t been to a bank since before the pandemic… maybe not once this year? 

“Today, bank deposits in the United States and most other countries are insured by the government.”

In the US we’ve all seen the FDIC logo at the bank: 

And this line about government insurance made me wonder, that is the Federal Deposit Insurance Corporation? 

First off, it’s a United States government corporation, which means it is a corporation chartered and owned by the federal government, which operates to provide public services, but unlike the federal agencies (Environmental Protection Agency, Bureau of Indian Affairs), or the federal independent commissions (e.g., the Federal Communications Commission, the Nuclear Regulatory Commission, etc.), it has a separate legal personality from the federal government, providing the highest level of political independence.

It’s run by five members, three appointed by the president of the United States with the consent of the United States Senate and two “ex officio” members. I had to look up what that meant, and it is a member of a body who is part of it by virtue of holding another office. Right now the two “ex officio” members are Brian Brooks, the Acting Comptroller of the Currency and Kathy Kraninger, the Director of the Consumer Financial Protection Bureau.

The three appointed members each serve six-year terms, but there is currently a vacant seat. Jelena McWilliams was appointed by Trump and Martin J. Gruenberg who was selected by Obama. Why doesn’t Trump fill the vacant seat? HE CAN’T! There is a rule that no more than three members of the board may be of the same political affiliation, so he just a spot empty. Weird and poor Martin probably has to eat alone in the cafeteria until Biden takes office.

It Worked!

I was surprised to read that the New York Fed was “successful” in flooding the New York City banks with cheap loans and is credited with keeping banks alive after the stock market crash of 1929. I mean, that is a small win in the grand scheme of the economy tanking and the start of the Great Depression, but still, nice work New York Fed.

The Other Federal Reserve Banks

“The Chicago Fed worried that putting more money into the system would encourage speculative gambling by traders rather than productive investments by business.”

Probably right, but in the grand scheme that is probably a smaller problem than the entire economy being wiped out. Also, “encouraging speculative gambling” sounds exactly like what happened with stocks during the pandemic

The head of the Dallas Fed warned against ‘interference with economic trends through artificial methods.’”

What are artificial methods when dealing with the economy? Is the economy nature? Who was the head of the Dallas Fed that seemed to believe in the natural laws of economics?  Charles Clinton Walsh the poet banker.

Colonel C.C. Walsh, earned his title of ‘Colonel’ as a Southern gentleman of honor and integrity, not on the field of the battle (like Colonel Sanders). He was born in 1867and was a public school teacher, a lawyer, a newspaper reporter, and author, and a banker. He was a member of The Poetry Society of Texas and known as “poet Laureate of the Southwest.” He died in 1943 and I didn’t find out that much about him. That obituary says he retired from the Fed in 1927, but an archived report has him listed as Chairman in 1929.

Judy Shelton, “Goldbug”

“Today, the gold standard is a thing some people refer to with nostalgia. Politicians sometimes still talk about returning to it. But people who know they’re talking about know this would be a disaster.”

Trump Fed nominee advances in Senate despite support for gold standard

“Judy Lynn Shelton is an American economic advisor to President Donald Trump … She is known for her advocacy for a return to the gold standard and for her criticisms of the Federal Reserve (which she has compared to the Soviet Union’s economic planning). Trump announced on July 2, 2019, that he would nominate Shelton to the Fed.” –Wikipedia

Also from wikipedia:

“More than 100 economists, including seven Nobel laureates, signed a letter opposing her confirmation, saying her views were ‘extreme and ill-considered.’”

Wow, that has to hurt!


​”More than a hundred cities printed paper IOUs that circulated as temporary money.”

I was looking into this a bit more and found that California actually issued IOUs in 2009! 

Unable to meet its bills for the second time this year, the state started printing IOUs on Thursday. Some 28,750 IOUs worth $53.3 million will be issued initially, mainly for personal income tax refunds. –CNN

And markets were quickly created for trading them!

The green documents look like any ordinary cheque except for the words “registered warrant” stamped in the corner. They carry a 3.75% interest rate and can be cashed in October, by which time California’s governor, Arnold Schwarzenegger, is hoping that he will have some money.

Entrepreneurs have been quick to leap on the phenomenon, with Craigslist and eBay cluttered with offers. A website,, aims to match sellers of the warrants with buyers eager to snap up the above-market interest rate. –Guardian

And this poorly formatted Business Insider article offers some historical context for State issued IOUs:

California is following the long tradition of bankrupt states turning to IOUs when the capital market looks less than inviting. States can’t make scrip issues legal tender but they want their IOUs to be accepted at prices close to par. This is a non-trivial problem for a state that can’t issue bonds at market yields. The traditional method is to accept scrip at par for state tax liabilities.

It doesn’t always work. Indiana issued 6% scrip in 1839 but they issued far more than current tax liabilities and the scrip traded at 40-50 cents on the dollar. During the canal busts of the 1840s Indiana, Michigan, Cook County IL and the city of Chicago all resorted to scrip IOUs. The IOUs generally traded between par and 40% discounts depending on perceived credit worthiness and supply relative to taxes due.

These are just a few examples. Between the panics of free banking era, the gilded age and Great Depression a number of states and hundreds of counties and cities issued IOUs when the money ran out. In most cases accepting the scrip for taxes created a market where the IOUs traded near par with minimal interest payments.

Fisher’s Back, Tell a Friend

Irving Fisher, the hero from the last chapter, and his new pal, George Warren, got to influence President Roosevelt and while all the other dudes in the room were pro-gold standard like Judy Shelton, Fisher and Warren were the outsiders who proclaimed a “new way” forward.

The idea that we switched off the gold standard because of a few forward thinking economists who were opposed by the establishment makes me wonder when we’ll have some crypto-heads with the President’s ear… I think a move toward national crypto seems as crazy as us today as going off the gold standard did in Roosevelt’s time. Of course, he was reacting to a massive crisis, which is usually what it takes for the establishment to change course. 

At the end of the chapter we return briefly to this idea of “natural” and “artificial” economics. 

“The believers in the gold standard gave it the power of nature … Roosevelt recognized that there was nothing natural about the gold standard; it was as artificial as any other monetary arrangement.”

What a beautiful note to end on! Money is a fiction! Money is created by us humans like art, poetry, and music. 

“Being good in business is the most fascinating kind of art. Making money is art and working is art and good business is the best art.” -Andy Warhol