Book review: The Cost Of Free Money - How Unfettered Capital Threatens Our Economic Future, by Paola Subacchi
As the full impact of the coronavirus pandemic slowly starts to become apparent, the question of economic survival – for individuals, businesses and even nation states – is under intense scrutiny. UK-based Italian economist Paola Subacchi examines the international financial system in meticulously researched detail here, noting that money “glues the world together”. She takes in the various challenges faced by the international economic order, and – as the title of the book suggests – proposes that unchecked capital mobility, with its negative, corrosive effects, is among the most serious of all of them.
Engagingly, the author gets her book out of the starting blocks by illustrating a point about varying taxation schemes with a first-hand tale about her mother crossing the border from Italy into France to buy a Louis Vuitton handbag.
She goes on to examine the history of economic turmoil and resulting bailouts, and the organisations created to help manage this, with varying degrees of success.
She often highlights measures such as “beggar-thy-neighbour” policies, whereby a country secures an unfair advantage at the expense of its neighbours or trading partners. She also repeatedly highlights the Bretton Woods conference, which took place in New Hampshire in the US in 1944, and the monetary management measures and rules for commercial relations that resulted from it, but proposes that repeating this kind of wide-ranging action would not currently be possible.
The professor – who is a non-executive director of Edinburgh-based Baillie Gifford’s FTSE-listed Scottish Mortgage Investment Trust and was previously director of international economics research at policy institute Chatham House – at times weaves in her own experiences, and often delves into intense levels of detail.
Arguing that a light-touch approach to regulation can have dire consequences, she includes sections on the causes of and responses to the 2008 global financial crisis and the economic collapse of Greece. She also examines how Argentina has handled its economic woes, and much attention is devoted to the power of China and its challenging of the dominance of the US dollar.
In light of China’s rise, she argues for a more resilient institutional framework that accounts for the changing dynamics of the world economy, to help reset a “fundamentally imbalanced economic and monetary system every time it short-circuits”.
She also states that the cracks in the global order “can no longer be ignored”, and writes that the parallels between now and the Great Depression of the 1930s are “conspicuous and shocking,” with some leaders putting great strain on international financial co-operation.
With so much uncertainty surrounding the new lay of the economic land, and the behaviour of those with key roles in shaping it, this book offers some well-presented solutions, formulated with fairer outcomes firmly in mind.
The Cost Of Free Money: How Unfettered Capital Threatens Our Economic Future, by Paola Subacchi, Yale University Press, £20
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