Paper Money, by Adam Smith, New York: Summit Books/Simon & Schuster, 1980, 317 pp., $14.95.
Books on the economy are like opening lines in a singles' bar: the trick is to devise some crafty, innovative vehicle to steer you to the destination whereto the whole world knows you're headed. Writing about the Homeland's financial mess may lead to a different conclusion from your-place-or-mine, but it is no less certain: all roads lead to the shrinking dollar.
Adam Smith—not the Adam Smith, of course, but the other Adam Smith—is nothing if not ambitious. Make that pretentious. One need look no further than his stolen nom de plume to figure this out, yet the courageous "Smith" throws in an "acknowledgments" section that surpasses even this and firmly establishes the author as the biggest name-dropper since Jesus. (He thanks no less than one Columbia professor, two MIT profs, four from Harvard, and six Princeton economists, not to mention countless sheiks, corporate prexies, and high-ranking government officials, all for their personal attention to his book.)
We might forgive this penchant for middle-aged preppyism if the talented communicative abilities of Mr. Smith (a star of the "new journalism" of Tom Wolfe fame) were put to satisfying, and worthy, intellectual use. But, alas, this is 301 pages of a cat chasing its own tail. While the title, Paper Money, hints of an understanding of inflation, intelligent analysis quickly gives way to cute anecdotes, and right-thinking suggestions wither in favor of the fluffy metaphor. This is a sundae with lots of tasty cherries—but no fudge.
It is amusing to read of the genesis of OPEC and to learn it was so carefully molded in the image of one of the great American institutions, the Texas Railroad Commission. Yet Smith stretches our patience past the snapping point with allegations that Arab-speaking operatives are the ones who create US inflations and depressions, mushroom our credits and debts, and stifle our government planners. Their main contribution, in point of fact, may be to allow folks like "Adam Smith" to write books about paper money without ever getting around to the central point: the Federal Reserve's legal monopoly on legal tender. If the Germans and Japanese blamed their troubles on the oil-slick sand-surfers of Saudi, why they'd be in such bad shape as…as…as we are.
Smith also employs his skills of good-essay in pursuit of the ever-fashionable joke-on-the-economist. This is a popular ploy of writers on the economy, one of the primary reasons being that easy things get done often. It can also be very funny, of course, unless one happens to be one of the hapless econometric "computer jockeys" Smith pokes at. Yet, when a pundit knows not of which he pokes, the scene comes off much as would the view of a blind matador punching at his bull. Smith wisely chooses to engage in combat with nothing more threatening than professional economists.
If Paper Money serves up even a side order of The Truth, it takes some 294 pages of appetizers to arrive. Finally, we find this finely seasoned morsel concerning the development of inflation:
After World War II the United States could borrow money for forty years and pay the lender 2½ percent. Now it pays 13 percent to borrow for ten years. The time horizon of the lender parallels the foreshortening of goals. Lenders do not want to lend long-term; corporate managers do not think long-term, they think more in near-term three-year slices. Building up capital and cutting back on debt is a tough and painful process. When it happens in the business cycle, the sufferers, whether business or farm or labor, complain and the government accommodates with more money. So the cycle of adding debt continues.
Inflation has done more for government than Madison Avenue could ever dream of doing for household appliances. It is the penultimate "buy now pay later" scheme and, at least until tax indexing, offered a generous rebate policy to the decisionmakers who exercised the option. What should worry us most, though, is the social frustration that explodes when rampant inflation erases all the game's ground rules. "The trouble with paper money," writes Smith, "is that it rewards the minority that can manipulate money and makes fools of the generation that has worked and saved."
Quite an insight; but this is just where our book ends. Perhaps the able-penned Adam Smith should spend less time in the Ivy League or Sharm el-sheik, and a little more time down at the Fed. No volume on inflation should wait until its last seven pages to reveal the culprit. The rest of us have already seen who dunnit.
Thomas Hazlett teaches economics at California State University, Fullerton, and contributes frequently to magazines and newspapers.
This article originally appeared in print under the headline "Paper Tiger".