The Report of Currency War
Zhang Xinyue
1130200166
10th December, 2012
As a college student majoring finance, currency is one of the economy word that I need to be familiar with. According to Mankiw (2012), we use money to evaluate the transactions in economy, which is similar to measuring length with inch. So there will be no influence to our actual wealth when money supply changes, just like the change in unit of inch cannot change the real distance. However, the book Currency Wars views money as a kind of weapon that can control the world wealth, instead of only a measuring tool. Song (2007) claimed that Mayer Amschel Rothschild, a financier, believed that the one who can control the money issuing of a country do not need to care who the law maker is. Currency Wars shows me a new perspective to consider history events, and the amazing power of currency.
The book Currency Wars is consisted with ten chapters, and it can be divided into five main parts. In these five main parts, the writer elaborates the history events of
economy, politic, society, and military wars in the nearest two hundred years through the financial perspectives.
Firstly, the book let me know who are the members of the Rothschild family, and what did they do in history. In this part, readers can know about the rise of the Rothschild family, a group of genius financiers; the establishment of the banking system in European countries; and how the Rothschild family colluded with royals to form a large financial system, which is considered the birth of the modern banking system.
Secondly, Mr. Song tells things about the battle between the United States
presidents and the international bankers during the hundreds of years, which was
involved in both the wars with shooting and the wars without smoke. He analyzes that not only the occurrence of the American War for Independence and the Civil War, but also
the famous assassinations to several American presidents was actually the financial war. In the end, the international financiers successfully got the right of issuing money after all these conflicts.
In the third part of Currency Wars, the breakout of World Wars and the great recession in 1929 all resulted from financial and monetary struggles. With all these
actions financiers took, the value of money people holding decreased while the wealth of financiers increased. Mr. Song defines this kind of behavior with the word “shearing”. When it comes to the forth part of the book, we can have a better understanding of how can financiers transfer wealth from one person to the other person, even from one country to another country. Currency Wars explains that the corporations plundered the third world countries’ resources and wealth by manipulating the price of oil and getting the “oil dollars”.
The last part of Currency Wars talks about the writer’s worry for the opening economy of China and the suggestions that might prevent the control of foreign financers’ “shearing”. Song (2007) alleged that gold standard will be the solution of protecting Chinese economy and resolving American debts.
Currency Wars works through these five parts with vivid description of facts in history, clear organization and attractive new opinions. It makes readers really enjoy the experience of reading this book. Currency Wars also gives me some enlightenment in considering economic problems.
One of the most impressive cases for me in Currency Wars is about how financiers “shearing” third world’s wealth by controlling oil prices. According to Lotterman (2006), the whole market is the price maker which includes suppliers and
demanders. How these financiers can increase the price of oil as they wanted? Because 84 members of the oil corporations consisted the world supply of oil, which means they had the power of shift the world’s economic supply curve. Engdahl (2006) claimed that the corporations controlled the oil supply and led to the shortage of world oil to increase the oil price. The price of oil was priced with dollar, so the increasing oil price increased the demand of dollar in the market for foreign-currency exchange, and then caused the appreciation of dollar. As a result, the value of money depreciated in the other countries and the wealth flow into the pockets of dollar users.
There is another case that impressed me a lot: the issuing of Lincoln’s Greenback. This case happened during the American Civil War. Lincoln faced the lack of money to continue the war. But it was impossible to borrow money from international bank because of the high interest. So that he accepted the advice of his friend Taylor and issuing Greenback to pay for the government spending. What surprised me was that the increasing supply of money did not cause a hyperinflation. According to Davies (2002), during the year between 1861 and 1865, the price level in North American mildly
increased from 100 to 216. It was amazing, but Mr. Song did not tell the readers how that happened. I thought about it and tried to explain it with what I studied in the
macroeconomics course. Mankiw (2012) claimed that the demand of money and the supply of money determine the price level. If we draw a coordinate axis that has a horizontal axis as quantity of money and a vertical axis as price level, then the
intersection of demand curve and supply curve expresses the economy price level. The increasing government purchase during the war made the demand of money increase, which means the downward demand curve shift right. In the mean time, the issuing of
Greenback made the money supply also increase, which shift right the vertical money supply curve. Lincoln successfully controlled the increasing level of money supply, and made both the curve shift right mildly, then finally cause a mild increase in price level. With a farther study of economy, I would have a better understanding on this case, and I really enjoyed the feeling of applying my knowledge when reading Currency Wars.
As a finance student, it is important for me to view situations with a clear mind. Figuring out the connection between the increasing oil price and wealth flow out is also the ability that I need to have. Thanks to the book Currency Wars analyzes the power of currency and tells me the financial factors behind the events I see.
Admittedly, some of the opinions in this book are too extreme. For instance, Song (2007) alleged that using gold standard in the economy will be the best way of prevent the “sharing” from foreign financiers. One of the reasons why I cannot agree with the view of Mr. Song is that the storage of gold is limited. The supply of gold cannot satisfy the demand of the modern development of economy. As we know the wealth people creating is increasing year by year, while the amount of gold storage is constant.
According to the article Should We (and Could We) Return to the Gold Standard (1981), even the world return to the gold standard the living standard of people will still not be better than today’s. The other reason why I have a different opinion in gold standard is that gold standard will cause the economy develops slowly. The story in Currency Wars, which Greenback allows Lincoln successfully enhance the living of American, is also the evidence that issuing money by mortgaging gold to bank can limit the economy. The similar things will happen to gold standard as well. The abolishment of gold standard
hundreds years before was inevitable, and we do not have reasons to turn world’s economy back to hundreds years ago.
Although Currency Wars has some debatable opinions, it is still a financial book that can give us students a lot of enlightenment in studying economy. Currency Wars write about the history events in the nearest two hundred years, and the writer analyzes the combination between the economy, politic, society, and military wars through the financial perspectives. It’s a book that worth to read more than once and can help me come up with new ideas in studying economy.
References
Davies, G. (2002). History of Money From Ancient Times to The Present Day. University
of Wales, p489.
Engdahl. W. (2006). A Century of War: Anglo-American Oil Politica And The New
World Order. London: Pluto Press. Lotterman. E. (2006). Pioneer press, st. paul, minn., edward lotterman column: Supply-
demand effects vary by market. Knight Ridder Tribune Business News. Retrieved from database Proques.
/docview/465291293?accountid=38789
Mankiw. N. G (2012). Money Growth and Inflation. Principle of Economics sixth Edition,
United States: South-Western Cengage Learing.
Should we (and could we) return to the gold standard. (1981, Sep 06). New York Times.
Retrieved from database Proques
/docview/424194659?accountid=38789
Song. H. B (2007). Rothschild: the invisible world's richest man. Currency War. p.1.
Beijing: Zhongxin.