The End of Finance [Englisch] [Taschenbuch]

This is an important book for three reasons. First of all it reveals how most commentary on the financial crisis has been blinded by a dogma about financial markets. Secondly it shows persuasively how current financial institutions are the result not of some kind of inevitable process of evolution but of decisions made for discoverable reasons at watershed moments in history. And most importantly it offers a path towards genuine reform in which the first steps are completely practical given a sufficient political will.

The key to that political will is a shared understanding of not just how the current financial system is set up to guarantee recurring crises but also how an alternative financial system is really possible. Much of the current commentary on the financial crisis seems to be an expression of stoical resignation in the face of the conviction that there is no way to prevent the bubble and bust cycles in financial markets. Regulations and policy may be able to tame them or nip around the edges, but oscillations are built into the nature of financial markets, and "innovative" financial wizards will always find a way to circumvent the latest regulations if not buy off enough politicians to do away with regulations altogether. Behind all this is the belief that financial markets are an essential requirement if the economy is going to work its wonders, a belief which Amato and Fantacci regard as dogmatic.

How and why we have come to accept the necessity of financial markets as an article of faith is part of what the authors describe in the first section of the book. What is more important though is that they are able to find a perspective from which an alternative form of finance appears possible. Their initial analysis of the conceptual framework within which it is possible to think of "financial markets" leads to the dissection of three aspects of the function of money: money as a measure of value, money as a means of exchange and money as a store of value. Historical examples are cited to show that money in a given economy does not always conflate these three functions, and it is clear that only when money functions as a store of value is it possible to regard money as a commodity traded in a "financial" market.

Most people would probably regard the suggestion that a modern economy can function without using money as a store of value a kooky utopian idea to be filed away well behind discredited schemes for a planned economy not relying on markets. The ideas of money, credit, and interest on which financial markets are founded seem given and beyond debate. They are part of the reality with which any economist must start if he hopes to make a contribution to our understanding of the crisis. The beauty of this book is that the authors do not merely open them up for debate but present them as the result of choices that were by no means inevitable. Their analysis results in a distinction between capitalism and a market economy, where capitalism is understood as a system in which money is a commodity whose price is determined by markets. One of the first questions an economist must answer is whether money is a tradable commodity, and one of the goals of the book is to explore the practical implications of saying it is not.

There are several interesting reviews of this book on the UK Amazon website.

The 2 reviews that precede mine are pretty accurate, so I'll make this short; in fact, I'll oversimplify the book.

The gist of the book is that money should be merely a unit of account. It should not be a medium of exchange or a store of value. Ideally, each community should have its own money and there should be no exchange of it. Rather, all local money should exchange at fixed rates into a unit of non-tradeable, non-lendable, non-spendable "international money" which then gets exchanged back into the money of another jurisdiction when you want to buy something there. Further, capital, surplus and savings are suboptimal, economically. They should be taxed to force the holders to spend them on goods and services. Debt should not be re-financed and should not be assignable. Trading debt causes lenders to be less vigilant. Rather, the lender should hold 100% of every loan and the borrower should pay it back (the author calls this a fiduciary relationship which is not accurate in the Anglo-American legal tradition; I cannot say what it would be called in civil law).

Sovereign debt cannot practically be repaid and sovereigns have no intention of doing so. They will repay when convenient and default when they need to. Currency used to be redeemable in something the sovereign could not control, effectively a debt, but in the 70's Nixon got rid of that and now we have fiat currencies, which illustrates the point. The only interesting question is how far the sovereign extends the prerogative to default with impunity. Its debts, its currency, its central bank, others? But, if we eliminate capital, there won't be any loans to go unpaid. If we adopt these principles, we won't have any financial crises. What we will lose, goes unaddressed.

Of course, I oversimplify, but not inordinately. The book is a difficult read as one reviewer before me noted. There is a good history section that was enjoyable.

It was interesting to see two Italians write this book. It is in many ways an Italo-centric view of the world, a world lived inside small walled towns.

I didn't like this as much as I thought I would. I do know something of the topic but I just felt that the writing was far too convoluted. It is written by academics and it is translated.

There were some interesting insights but they were very well buried! It was quite inconsistent with some things really being glossed over.

Section two which concentrates more on economic history is significantly more readable but even there it was still pretty dense.

It did surprise me at times and there were a few moments where it really did make think differently about things that I had taken for granted. For that reason I will give it a generous three stars.