Review of Hostile Money: Currencies in Conflict

“The purposes of money are constant, the way it operates varies hugely” says Paul Wilson at the outset  – and few authors have illustrated this as interestingly as he does. Impressively erudite, he never lets his command of detail hold up the story, so that the reader is swept up in the stormy history of money’s role in some of the greatest social, political and military conflicts from ancient Rome to the cyber warfare of the 21st century.

Wilson successfully explores the inter-connections between major social movements/events/conflicts on the one hand and money/monetary systems on the other.  This also is a major theme of my new book, The Power of Money. (Or here) Such a perspective on history allows him to organize much of the book around types of social/political development  – notably rebellions, riots and coups,  revolutions and civil wars.  Each of these gets a chapter to itself – with examples drawn from the entire span of economic history from ancient Babylon, Egypt and China to the military coup on Portugal in 1924 and the civil war in Bosnia in the 1990s. On the latter, he provides a detailed account of the  conflict and its devastating effect on the monetary system – the unenviable record of being one of the worst hyperinflation ever recorded – and thus on the economy:

“The history of the civil war in Bosnia and its effect on the currencies in circulation  there is yet another demonstration of how easily complete collapse of a currency system can follow the outbreak of domestic conflicts.”

Typically, however, he balances this by drawing another even more general lesson from the conclusion of this episode, which saw  the creation of the Central Bank of Bosnia-Herzegovina under the leadership of the estimable New Zealander Peter Nicholl:

“.. the post-war monetary arrangements prove equally effectively that wise stewardship can relatively quickly restore order to a country’s ruined monetary system – provided the essential ingredient of peace has already been imposed”.

A new social order (for example, a revolution) is often accompanied or followed quickly by monetary change; those who acquire supreme power in a  state move fast to secure control of its money. As Wilson observes, whoever controls the supply of money commands the army, civil service and other public services. However, there are plenty of examples of states that have not controlled the money supply tightly – many have been quite content, for example, to allow foreign monies to circulate. In Britain royal control of money was often challenged. The British colonists in America often used commodities, including tobacco, warehouse receipts and other paper substitutes as means of exchange – although the pound remained the unit of account until the Revolution.

Collapse of a currency does not necessarily lead to the failure of the state issuing it – the failure of the assignats money issued by the revolutionary government in France in the 1790s did not signal the end of the French Revolution. Indeed, history does not bear out the famous dictum attributed to Lenin by Keynes that the best way to destroy the capitalist system is to debauch its currency. On the contrary, says Wilson,  “rarely if ever has (the failure of a currency system) been the root cause of the collapse of a political regime.”

Money in 20th century conflicts

The heart of the book throws new light on money’s role in the 20th century’s innumerable and diverse social movements and conflicts,  starting with the financing of World War 1 by the belligerents and the passing of the world monetary leadership from Britain to the United States. The chaotic decade following the armistice witnessed “practically every monetary pathogen”. It was also marked by continual efforts to restore the pre-war gold standard. Although some modern economists have condemned these attempts as futile and foolish,  Wilson correctly observes that “the idea of money free of restraints imposed by convertibility to the precious metal was inconceivable”.  Through the familiar story of the German hyperinflation, Wilson offers an enlightening account of the monetary arrangements imposed by Nazi Germany’s on countries it occupied or dominated (a particular strength of this book is the attention paid to monetary systems set up by colonial/occupying powers in territories under their control). Equally fascinating is Wilson’s account of the close relationship – which in his telling seems close to a conspiracy – between President Roosevelt, his Treasury Secretary Henry Morgenthau, and Soviet boss Joseph Stalin about monetary arrangements for Germany.This was orchestrated by Harry Dexter White of the US, an architect of the Bretton Woods agreement, who, says Wilson ‘played the part of a Soviet agent of influence, event if his true intentions and commitment to the Soviet ideology remains disputed’.  The Soviet aim was to use money as an instrument to ensure Germany’s ‘subjugation’ ; Morgenthau wanted to reduce Germany permanently to a vegetative state. Either way, money was to be ‘an important offensive and defensive weapon of war.’

This review has but skimmed the surface of a book that will repay detailed study. The author wears his scholarship lightly. He has no ideological axes to grind. He avoids getting bogged down in sterile debates  for example about monetarist versus Keynesian interpretations of the Great Depression or other much-debated periods of 20th century economic history. He rightly views money as a key social institution, responding to political, military and economic pressures but having its own dynamic. Money stands ready to make its contribution to progress, given the chance to do so. It is part of the effort to better the human condition. This combination of qualities makes the book a pleasure to read.

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