Economics | Alessandro Perilli

Average Hourly Salaries Across Europe (2014)

peris — Fri, 05 Apr 2024 09:01:50 +0000

In 2014, the average hourly salary across Europe was 24 Euros / hour.

The post Average Hourly Salaries Across Europe (2014) first appeared on Alessandro Perilli.

Asset Class Total Returns Since 2011

peris — Thu, 04 Apr 2024 11:10:37 +0000

Annual Change in World Population

peris — Fri, 15 Jul 2022 12:49:35 +0000

Distribution of World’s GDP from 1970 to 2020

peris — Wed, 27 Apr 2022 10:40:05 +0000

It’s the Fed that had the power to print money, not the US government

peris — Mon, 17 Jan 2022 13:35:40 +0000

Contrary to popular belief, the U.S. government can’t “just print money,” because American money is not issued by the Federal government at all, but by private banks, under the aegis of the Federal Reserve System.

The Federal Reserve, in turn, is a peculiar sort of public-private hybrid, a consortium of privately owned banks whose Governing Board is appointed by the U.S. president, with Congressional approval, but which otherwise operates autonomously.

All dollar bills in circulation in America are “Federal Reserve Notes”—the Fed issues them as promissory notes and commissions the U.S. mint to do the actual printing, paying it four cents for each bill.

The arrangement is just a variation of the scheme originally pioneered by the Bank of England, whereby the Fed “loans” money to the United States government by purchasing treasury bonds, and then monetizes the U.S. debt by lending the money thus owed by the government to other banks.

The difference is that while the Bank of England originally loaned the king gold, the Fed simply whisks the money into existence by saying that it’s there.

Thus, it’s the Fed that has the power to print money. The banks that receive loans from the Fed are no longer permitted to print money themselves, but they are allowed to create virtual money by making loans ostensibly, at a fractional reserve rate established by the Fed—though in practice, even these restrictions have become largely theoretical.

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Fiat money —mere pieces of paper, intrinsically worthless, that were treated as money only because the US insisted that they should be

peris — Mon, 17 Jan 2022 13:31:42 +0000

On August 15, 1971, United States President Richard Nixon announced that foreign-held U.S. dollars would no longer be convertible into gold—thus stripping away the last vestige of the international gold standard.

This was the end of a policy that had been effective since 1931, and confirmed by the Bretton Woods accords at the end of World War II: that while United States citizens might no longer be allowed to cash in their dollars for gold, all U.S. currency held outside the country was to be redeemable at the rate of $ 35 an ounce.

By doing so, Nixon initiated the regime of free-floating currencies that continues to this day.

The consensus among historians is that Nixon had little choice. His hand was forced by the rising costs of the Vietnam War—one that, like all capitalist wars, had been financed by deficit spending.

The United States was in possession of a large proportion of the world’s gold reserves in its vaults in Fort Knox (though increasingly less in the late 1960s, as other governments, most famously Charles de Gaulle’s France, began demanding gold for their dollars); most poorer countries, in contrast, kept their reserves in dollars.

The immediate effect of Nixon’s unpegging the dollar was to cause the price of gold to skyrocket; it hit a peak of $ 600 an ounce in 1980. This of course had the effect of causing U.S. gold reserves to increase dramatically in value.

The value of the dollar, as denominated in gold, plummeted. The result was a massive net transfer of wealth from poor countries, which lacked gold reserves, to rich ones, like the United States and Great Britain, that maintained them.
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Nixon floated the dollar in order to pay for the cost of a war in which, during the period of 1970–1972 alone, he ordered more than four million tons of explosives and incendiaries dropped on cities and villages across Indochina—causing one senator to dub him “the greatest bomber of all time.”

The debt crisis was a direct result of the need to pay for the bombs, or, to be more precise, the vast military infrastructure required to deliver them. This was what was causing such an enormous strain on the U.S. gold reserves.

Many hold that by floating the dollar, Nixon converted the U.S. currency into pure “fiat money”—mere pieces of paper, intrinsically worthless, that were treated as money only because the United States government insisted that they should be.

In that case, one could well argue that U.S. military power was now the only thing backing up the currency. In a certain sense this is true, but the notion of “fiat money” assumes that money really “was” gold in the first place.

Really we are dealing with another variation of credit money.

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The history of paper money in Europe starts with the Venetian government levying a compulsory loan to pay for war

peris — Sun, 16 Jan 2022 15:50:48 +0000

The history of modern financial instruments, and the ultimate origins of paper money, really begin with the issuing of municipal bonds—a practice begun by the Venetian government in the twelfth century when, needing a quick infusion of income for military purposes, it levied a compulsory loan on its taxpaying citizens, for which it promised each of them five percent annual interest, and allowed the “bonds” or contracts to become negotiable, thus creating a market in government debt.

The Venetians tended to be quite meticulous about interest payments, but since the bonds had no specific date of maturity, their market prices often fluctuated wildly with the city’s political and military fortunes, and so did resulting assessments of the likelihood that they would be able to be repaid.

Similar practices quickly spread to the other Italian states and to northern European merchant enclaves as well: the United Provinces of Holland financed their long war of independence against the Hapsburgs (1568–1648) largely through a series of forced loans, though they floated numerous voluntary bond issues as well.
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It was only with the creation of the Bank of England in 1694 that one can speak of genuine paper money, since its banknotes were in no sense bonds.

They were rooted, like all the others, in the king’s war debts.

This can’t be emphasized enough.

The fact that money was no longer a debt owed to the king, but a debt owed by the king, made it very different than what it had been before. In many ways, it had become a mirror image of older forms of money.

The reader will recall that the Bank of England was created when a consortium of forty London and Edinburgh merchants—mostly already creditors to the crown—offered King William III a £1.2 million loan to help finance his war against France.

In doing so, they also convinced him to allow them in return to form a corporation with a monopoly on the issuance of banknotes—which were, in effect, promissory notes for the money the king now owed them.

This was the first independent national central bank, and it became the clearinghouse for debts owed between smaller banks; the notes soon developed into the first European national paper currency.

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While debt among each other was normal for English villagers, it was associated with criminality in government and commerce circles

peris — Sun, 16 Jan 2022 13:26:58 +0000

Cold cash was employed largely between strangers, or when paying rents, tithes, and taxes to landlords, bailiffs, priests, and other superiors. The landed gentry and wealthy merchants, who eschewed handshake deals, would often use cash with one another, especially to pay off bills of exchange drawn on London markets.

Above all, gold and silver were used by the government to purchase arms and pay soldiers, and amongst the criminal classes themselves.

This meant that coins were most likely to be used both by the sort of people who ran the legal system—the magistrates, constables, and justices of the peace—and by those violent elements of society they saw it as their business to control.

Over time, this led to an increasing disjuncture of moral universes.

For most, who tried to avoid entanglement in the legal system just as much as they tried to avoid the affairs of soldiers and criminals, debt remained the very fabric of sociability. But those who spent their working lives within the halls of government and great commercial houses gradually began to develop a very different perspective, whereby cash exchange was normal and it was debt that came to be seen as tinged with criminality.
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English villagers in Elizabethan or Stuart times did not like to appeal to the justice system, even when the law was in their favor—partly on the principle that neighbors should work things out with one another, but mainly, because the law was so extraordinarily harsh.

Under Elizabeth, for example, the punishment for vagrancy (unemployment) was, for first offense, to have one’s ears nailed to a pillory; for repeat offenders, death.60 The same was true of debt law, especially since debts could often, if the creditor was sufficiently vindictive, be treated as a crime.

In Chelsea around 1660, Margaret Sharples was prosecuted for stealing cloth, “which she had converted into a petticoat for her own wearing,” from Richard Bennett’s shop.

Her defense was that she had bargained with Bennett’s servant for the cloth, “but having not money sufficient in her purse to pay for it, took it away with purpose to pay for it so soon as she could: and that she afterwards agreed with Mr Bennett of a price for it.”

Bennett confirmed that this was so: after agreeing to pay him 22 shillings, Margaret “delivered a hamper with goods in it as a pawn for security of the money, and four shillings ninepence in money.” But “soon after he disliked upon better consideration to hold agreement with her: and delivered the hamper and goods back,” and commenced formal legal proceedings against her.

As a result, Margaret Sharples was hanged.

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Middle Ages Scholastics, like Aristotle, viewed money as a mere social convention

peris — Sat, 15 Jan 2022 16:57:04 +0000

Europe, as I mentioned, came rather late to the Middle Ages and for most of it was something of a hinterland. Still, the period began much as it did elsewhere, with the disappearance of coinage.

Money retreated into virtuality. Everyone continued to calculate costs in Roman currency, then, later, in Carolingian “imaginary money”—the purely conceptual system of pounds, shillings, and pence used across Western Europe to keep accounts well into the seventeenth century.

Local mints did gradually come back into operation, producing coins in an endless variety of weight, purity, and denominations. How these related to the pan-European system, though, was a matter of manipulation.

Kings regularly issued decrees revaluing their own coins in relation to the money of account, “crying up” the currency by, say, declaring that, henceforth, one of their ecus or escudos would no longer be worth 1/ 12 but now 1/ 8 of a shilling (thus effectively raising taxes) or “crying down” the value of their coins by doing the reverse (thus effectively reducing their debts).
The real gold or silver content of coins was endlessly readjusted, and currencies were frequently called in for re-minting.

Meanwhile, most everyday transactions dispensed with cash entirely, operating through tallies, tokens, ledgers, or transactions in kind.

As a result, when the Scholastics came to address economic questions in the thirteenth century, they quickly adopted Aristotle’s position that money was a mere social convention: that it was, basically, whatever human beings decided that it was.

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How and why China moved from bullions and cash to paper money

peris — Sat, 15 Jan 2022 15:16:04 +0000

Tallies weren’t just used for loans, but for any sort of contract—which is why early paper contracts also had to be cut in half and one half kept by each party. With paper contracts, there was a definite tendency for the creditor’s half to function as an IOU and thus become transferable.

By 806 AD, for instance, right around the apogee of Chinese Buddhism, merchants moving tea over long distances from the far south of the country and officials transporting tax payments to the capital, all of them concerned with the dangers of carrying bullion over long distances, began to deposit their money with bankers in the capital and devised a system of promissory notes.

They were called “Flying Cash,” also divided in half, like tallies, and redeemable for cash in their branches in the provinces.

They quickly started passing from hand to hand and operated something like currency. The government first tried to forbid their use, then a year or two later—and this became a familiar pattern in China—when it realized that it could not suppress them, switched gears and established a bureau empowered to issue such notes themselves.

By the early Song dynasty (960–1279 AD), local banking operations all over China were running similar operations, accepting cash and bullion for safekeeping and allowing depositors to use their receipts as promissory notes, as well as trading in government coupons for salt and tea.

Many of these notes came to circulate as de facto money.

The government, as usual, first tried to ban the practice, then control it (granting a monopoly to sixteen leading merchants), then, finally, set up a government monopoly—the Bureau of Exchange Medium, established in 1023—and before long, aided by the newly invented printing press, was operating factories in several cities employing thousands of workers and producing literally millions of notes.

At first, this paper money was meant to circulate for a limited time (notes would expire after two, then three, then seven years) and was redeemable in bullion. Over time, especially as the Song came under increasing military pressure, the temptation to simply print money with little or no backup became overwhelming—and, moreover, Chinese governments were rarely completely willing to accept their own paper money for tax purposes.

Combine this with the fact that the bills were worthless outside China, and it’s rather surprising that the system worked at all. Certainly, inflation was a constant problem and the money would periodically have to be recalled and reissued.

Occasionally, the whole system would break down, but then people would resort to their own expedients: “privately issued tea checks, noodle checks, bamboo tallies, wine tallies, etc.”

Still, the Mongols, who ruled China from 1271 to 1368 AD, chose to maintain the system, and it was only abandoned in the seventeenth century.

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