Allen Lane, £20, 294pp£18 from the Independent Bookshop: 08430 600 030

Paper Promises: Money, Debt and the New World Order, By Philip Coggan

 

Are things as bad now as they were in 1929? Or should we instead look further back – to the Dark Ages, when economic output shrank by a quarter – for the appropriate comparison? Surely there could be no more dramatic indicator of the perceived gravity of the situation than the fact that a leading financial commentator recently posed this question. In this context of mildly hysterical panic in financial circles, Philip Coggan's book adds a welcome note of calm analysis. It is not that he is upbeat. However, he draws on years of experience as a journalist to take a step back from the headlines of Eurozone crisis and banking frailty and consider the bigger picture.

The theme of Paper Promises is the often-overlooked link between debt, money and the state. Financial events have political causes and consequences. Confidence in credit, Coggan reminds us, "depends on our belief in the state". In the confusion of technical details and acronyms, it is easy to overlook the intimate relationship between matters financial and political. It is equally easy, therefore, to make the mistake of looking for purely technical, rather than political, solutions to the crisis.

The book is shaped around the long historical perspective on money and credit, setting out the different uses of money (a unit of account for measuring value, a medium of exchange for trading, and a store of value for saving) and the key milestones in monetary history.

The story of how we got to the present stage of money as "bits" of data exchanged between computers, not anchored by anything real like gold, sets the scene for understanding what has gone so terribly wrong since 2008. Money is a social phenomenon as well as a technological one, and those computer exchanges only allow money to serve its purpose as long as we trust each other. The history also serves as a reminder that crises have occurred frequently, and in some ways never change. As Coggan notes of the 1930s: "Bank executives, believers in sound money to a man when other sectors of the economy were in trouble, became less keen on monetary purity when it came to their own survival – a theme ... echoed in 2007 and 2008."

Looking back over the centuries of debt crises, the dilemma facing governments is clear. Either the central bank can issue a large amount of new money, creating an inflation that eats away the real value of debt, or it can sustain the purchasing power of money at the expense of a substantial economic downturn (as in 1930s Britain). The choice is whether to help out the debtors or the creditors, whose interests are opposed.

The book ends by noting the legacy of the debts recent history will bequeath our children and grandchildren. As Coggan points out, the scale of the accumulation of debt is under-stated because, as well as their explicit debts, all governments have made unfunded promises in the form of the expectation of future health and pensions payments. In an ageing population, this is another large burden on the next generation.

To return to that opening question, how bad are things now? There are four possible ways out, the book explains: higher growth, inflation, stagnation and default. Only the last three are really plausible in ageing economies that have under-invested for decades. "Which of these three scenarios will occur? Alas it is very difficult to know for sure, but in a sense it doesn't matter."

Any of the three means the overhang of debt will not be repaid. And that in turn implies political upheaval. As well as owing each other money, the West's nations owe China for the credit boom of the 1990s and 2000s. China is the massive creditor in the global economy. Coggan sees the present crisis as the decisive turning point in the long geo-political rivalry between the West and the rest, especially China. He concludes: "The global economy is changing; for many in the west, it will not be for the better."

Diane Coyle runs the Enlightenment Economics consultancy and is the author of 'The Economics of Enough'

Have you tried new the Independent Digital Edition apps?
Arts and Entertainment

ebooksNow available in paperback
Arts and Entertainment

ebooks
Arts and Entertainment
Christopher Eccleston (centre) plays an ex-policeman in this cliché-riddled thriller

TV review
Arts and Entertainment
Lena Headey looks very serious as Cersei Lannister in Game of Thrones

TV This TV review contains spoilers
Arts and Entertainment

film
Arts and Entertainment
Wiz Khalifa performs on stage during day one of the Wireless Festival at Perry Park in Birmingham

music
Arts and Entertainment
Festival-goers soak up the atmosphere at Glastonbury

music

Arts and Entertainment
Star Wars creator George Lucas

film

Arts and Entertainment

music

Arts and Entertainment
A shot from the forthcoming Fast and Furious 7

film

Arts and Entertainment
The new-look Top of the Pops could see Fearne Cotton returns as a host alongside Dermot O'Leary

TV

Arts and Entertainment
The leader of the Church of Scientology David Miscavige

TV

Arts and Entertainment
No half measures: ‘The Secret Life of the Pub’

Grace Dent on TV The Secret Life of the Pub is sexist, ageist and a breath of fresh air

Arts and Entertainment
Art on their sleeves: before downloads and streaming, enthusiasts used to flick through racks of albums in their local record shops
musicFor Lois Pryce, working in a record shop was a dream job - until the bean counters ruined it
Arts and Entertainment
Serial suspect: the property heir charged with first-degree murder, Robert Durst
TV review
Arts and Entertainment
Igarashi in her

Art Megumi Igarashi criticises Japan's 'backwards' attitude to women's sexual expression

Arts and Entertainment
Could Ed Sheeran conquer the Seven Kingdoms? He could easily pass for a Greyjoy like Alfie Allen's character (right)

tv Singer could become the most unlikely star of Westeros

Arts and Entertainment
Beyonce, Boris Johnson, Putin, Nigel Farage, Russell Brand and Andy Murray all get the Spitting Image treatment from Newzoids
tvReview: The sketches need to be very short and very sharp as puppets are not intrinsically funny
Arts and Entertainment
Despite the controversy it caused, Mile Cyrus' 'Wrecking Ball' video won multiple awards
musicPoll reveals over 70% of the British public believe sexually explicit music videos should get ratings
Arts and Entertainment
Lena Headey as Cersei Lannister and Ian Beattie as Meryn Trant in the fifth season of Game of Thrones

TV
Arts and Entertainment

book review
Arts and Entertainment
It's all in the genes: John Simm working in tandem with David Threlfall in 'Code of a Killer'

TV review
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?

ES Rentals

    Independent Dating
    and  

    By clicking 'Search' you
    are agreeing to our
    Terms of Use.

    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
    Public relations as 'art'? Surely not

    Confessions of a former PR man

    The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
    Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

    Bill Granger's luxurious sweet treats

    Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
    London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

    The mother of all goodbyes

    Paula Radcliffe's farewell to the London Marathon will be a family affair
    Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

    Steven Naismith: 'We know we must do better'

    The Everton forward explains the reasons behind club's decline this season
    Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

    Michael Calvin's Last Word

    Praise to Wenger for having the courage of his convictions