Backstory
I'll cut to the chase. I'm neither economist nor historian. I'm a full-time carer for my disabled mum - and have been for many years. In what feels like a lifetime ago I worked in information technology, focusing on transnational accounting system projects; enterprise resource planning (ERP) to use the lingo. I've worked for a Japanese sogo-shosha, a big-4 professional service provider and a major energy transmission company. My further education includes an undergraduate degree in Business & Economics (BA) and a postgraduate degree in Computer Security Forensics & Risk Management (MSc).
An Email Out of the Blue
Back in the early 2000s I opened a self-invested private pension (SIPP). I made regular, albeit small contributions to my SIPP for a few years, but really hadn't thought about it in such a long time; my SIPP lay dormant, most definitely to the back of my mind. And then in the spring of 2016 I received an email. My SIPP provider had decided to get in touch. "Your SIPP has a high proportion held as cash" read the subject line. They continued, "... This might be part of your strategy, but it can drag on returns." Strategy? I didn't know whether to laugh or cry. What strategy? Initially surprised to have heard from them at all, I ignored it. A high proportion of not much is not much. But it gnawed at me. The years are rolling by. My time now as a full time carer is at once both personally meaningful and financially unrewarding. I should do something. It was obvious. I would invest in a government bond fund. The thing is, it suddenly didn’t feel obvious. Nothing post 2008 financial system collapse felt obvious. Why was there such volatility in the price of UK government bonds (gilts)? What is this system?
Learning By Reading
I dusted off my old textbooks. Undergraduate economics had taught me something - a generally received narrative to accompany a discombobulating mainstream news cycle. A blog pointed me to a paper written by economist Robert J. Shiller who considered the study of narratives to better understand economic fluctuations. I wondered about narratives. However, as Shiller notes, "We cannot easily prove that any association between changing narratives and economic outcomes is not all reverse causality..." It was a start.
Weeks turned into months of reading economic blogs and materials. It was December 2016 and once again I was browsing Amazon books when I saw it; 'customers also viewed - Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth written by Wynne Godley and Marc Lavoie. I was intrigued. What a tremendous title. I read a sample; 'Balance Sheets, Transaction Matrices and the Monetary Circuit'. I was sold! But it was expensive. I hummed and harred for a week before making my purchase. I had to have it.
In July 2018 I bought Crashed, a wonderfully informative analysis of the 2008 financial crisis written by Adam Tooze. But it wasn't until November 2019 when I bought and read 'Making Money: Coin, Currency and the Coming of Capitalism' written by Christine Desan that I began to appreciate the history of the system I was studying. Desan explores the long evolution of the English monetary system, a story with the power to historicise1 Godley and Lavoie's meticulous monetary models. A simply fascinating account of political-economy - of institutions - fundamental to both early and modern monetary systems. While metallism narrates the compound money of earlier times, it was a system - a monetary system - that bestowed on precious metals a cash price. Today, a government with the authority and power to create currency will issue bonds in order to produce safe collateral assets for non-government sectors.
Schools of Thought
My reading continued. By late 2022 it dawned on me that the books and academic papers I have mostly read since 2016 were each a lens through which to view a particular social system - one of power, resources and the distribution thereof. Not once did undergraduate economics mention economic schools of thought, specifically their understanding of money in society. Schools have wildly differing perspectives on what money is and how it works. Is gold important in a modern money system? Could a government issue currency without subsequently issuing bonds? I'm tempted to answer respectively, no, not really and yes, but won't - not least because market-based finance is an inherently unstable, pro-cyclical, collateralised, bond price sensitive system structured atop government debt instruments.
Learning By Doing
George Box said, "all models are wrong, but some are useful". The latest GEM model won't explain everything, perhaps it won't explain much at all, but within a particular bounded framework, it might just be useful. View project GEM.