One of the great benefits of shopping in used bookstores is uncovering a hidden gem. I was cleaning out my book collection, and came across a book called Paper Money by Adam Smith. Smith is not, of course, the famous Scottish philosopher who wrote The Theory of Moral Sentiments, but the pseudonym of a writer by the name of George J. W. Goodman. Goodman wrote several popular books about the financial world and worked as a columnist; you can read his obituary here. His first book, Supermoney, was apparently sort of an expose of Wall Street, hence the pseudonym, which he reluctantly kept.
Goodman’s book is a pleasure to read. Writing about the economy in a way that ordinary people can understand and is actually fun to read is a lost art. John Kenneth Galbraith practiced it; Michael Lewis is a modern example, as is Tim Harford (The Undercover Economist). But the reason this book struck a chord is because it attempts to understand the world of Paper Money, what we today call fiat currency-- how it happened, and why, and what the ramifications were at the time of the book’s writing, which was 1981. But the reason I found it so fascinating were two of its main themes: 1.)The sky-high cost of California real estate, and 2.) the sky-high cost of oil.
Sound familiar? Indeed, Smith’s 1981 book feels in many ways like it could have been written yesterday. But it also serves as a historical time capsule of sorts.
Smith devotes a huge portion of the book to explaining the rise of OPEC. It makes fascinating reading. The thing reads almost as a political thriller, and I learned a lot. It turns out, OPEC was the brainchild of a Venezuelan lawyer. His inspiration was the Texas Railroad Commission! But was most astounding was the degree to which there was so much oil back in the day, and so cheap. We had to come up with ways to use it fast enough. Not only that, the glut seemed like it would last forever. People, even oil people, thought it would last forever. And the glut coincided perfectly with the period of mass prosperity in the U.S.A., and the U.S.A’s role as the word’s main currency issuer. OPEC made little difference for a decade, and then a French bulldozer changed the score. Oil prices went up ten times in a decade, the same decade we reached Peak Oil, causing the crisis that ended American prosperity. The Vietnam war, paid for without raising taxes, began the inflation crisis. The massive trade deficits between the U.S and the rest of the world led to the creation, by a Soviet banker, of the Eurodollar. The unregulated proliferation of Eurodollars led to the abandonment of the gold standard and the fall of Bretton Woods.
But the biggest reason I want to reiterate this story is to emphasize that the fall of the Middle Class/Great Compression and the rise of Neoliberalism is almost entirely due to oil! That’s the conclusion one draws, anyway. So the story needs to be told, I think.
All citations are from the book unless noted otherwise. Certain passages have been edited and moved around for clarity. This is no disrespect to the author. I couldn’t help pining for Smith/Goodman to be around today to explain our increasingly chaotic and inscrutable money world with such erudite wit and clarity. Where is our George J.W. Goodman? We need him more than ever.