Money, Credit and Financial Systems (Are Crises Built into Their DNA?)

This essay was completed in early January 2010.

My intent was to bring the whole business of credit and money comfortably within the grasp of the intelligent lay reader. Not only how they’re created and why things have gone so terribly wrong, but also what a more sane and stable financial system might look like.

No single area of economics attracts more misunderstanding, and through it creates more damage than that of money and credit. Even the self-professed experts are perennially at each others throats. For me, it’s been a bit of an obsession for a long time, not only because of the fascination of the issues themselves, but also because of their great societal import.

A lot’s happened since it was written but the piece has held up tolerably well. Some of the subsequent posts further develop various aspects of the essay. In particular, I’d suggest looking at “Some further thoughts on financial reform“, “Macroeconomic Resilience” and “Control Rights (and Wrongs)“.

I called my suggestions “humble” for good reason. The structuring and regulation of financial systems is so complex and hotly contested that anyone who thinks they’ve got matters comfortably sorted probably needs watching. Still, things aren’t quite as convoluted and rubbery as the chaos of the ongoing debate can make them seem. There are some surprisingly simple underlying principles we can hold onto to help us find our way through the maze.

Hopefully the essay helps bring them into better focus and so makes a small contribution to this vital ongoing conversation.

P.S. As you can see from the menu immediately below, it’s divided into ten parts. You can of course go directly to any one of them, but there’s no doubt it’s best read in sequence and in its entirety since the later ones often rely on ground covered earlier.