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Banks as Money Labs Mervyn King, The End of Alchemy

A year has passed since the publishing of Mervyn King’s book The End of Alchemy. Money, Banking and the Future of the Global Economy[1], by Little Brown, London. Why, then, review it today? As readers will see for themselves, the book is definitely topical, not only as money and banks and global economy are leading characters on the world stage, but also as it is written in such a manner as to allow the (un)initiated peruser to gain (further, deeper) insight into the intricacies of world economy and how it came to be what it is today.

In writing this book, Lord Mervyn King aimed at understanding the roots of the financial and economic crisis of 2007-2009, which he directly experienced in his position as a Governor of the Bank of England (2003-2013). However, the path of investigation carried him not only through his own and his peers’ documents and recollections of the events in the British, American and other financial and banking environments of the time, but through centuries, to the dawn of the money and banking system. Only by embarking on such a prolonged journey does the author fully realize that crises are not the mere sums of contemporary mishappenings or misjudgements, but the direct (albeit not immediate) effect of the configuration of the system – its design, the relationship between stakeholders, everything lies on the shaky grounds of the alchemical illusion that “paper money could replace intrinsically valuable gold and precious metals, and that banks could take secure short-term deposits and transform them into long-term risky investments” (p. 369). In other words, “The pretence that the illiquid real assets of an economy – the factories, capital equipment, houses and offices – can suddenly be converted into money or liquidity is the essence of the alchemy of the present system” (p. 253). The system can only run smoothly if there is trust in it, in banks’ ability to refund depositors (among other operations); however, trust is fragile in a world where “radical uncertainty” prevails.

To prevent crises from happening and/or to mitigate their devastating effects, Lord Mervyn King sees only one solution: an intellectual revolution that could initiate a "long-term programme for the reform of money and banking and the institutions of the global economy” (p. 369-370). We believe that this reformation mindset cannot arise in the absence of the understanding of the underlying financial and economic mechanisms of the system, and that Lord King’s book informs one’s insights by referring not only to economic literature but also to a large array of historical and cultural facts from all over the world.

In a wonderful dialogue across time, King capitalizes on the works of predecessors – John Maynard Keynes, for instance, who, in his 1936 book The General Theory of Employment, Interest, and Money, addresses specialists – “This book is chiefly addressed to my fellow economists. I hope that it will be intelligible to others”. However, Mervyn King’s book escapes the ivory tower, as it is aimed not primarily at specialists, but at the general public: “Although I would like my fellow economists to read the book in the hope that they will take forward some of the ideas presented here, it is aimed at the reader with no formal training in economics but an interest in the issues” (p. 6-7). Could it be that Mervyn King’s hope for reformation lies precisely in this interested (civically engaged) reader?

[1] Romanian readers are kindly referred to the translated version: Mervyn King, Sfârşitul alchimiei. Banii, băncile şi viitorul economiei mondiale, Editura Comunicare.ro, București, 2017, Prefață: Mugur Isărescu; traducere: Viorela-Valentina Dima, Antonia Cristiana Enache, Raluca Elena Hurduzeu, Raluca Nicoleta Șerban.

 
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OEconomica No. 1, 2016