How the oil cartel changed global trading (Paper Money, by Adam Smith, 1981)

Adam Smith. Paper Money. (1981) A discussion of the effects of the oil crisis of the early 1970s, when Saudi Arabia and nearby countries formed OPEC. This resulted in what Smith calls “the greatest transfer of wealth” in the history of Earth. Its effect on money was to devalue the dollar, which now has about 1/10th of its former value.

In 1980 or thereabouts the second round of inflation began. Central banks everywhere raised interest rates into the double digits. Ordinary folk like us faced mortgages offered at above 20%. We paid 23% on the line of credit we used to build our house. The bank manager asked his central office to approve a mortgage in the high teens. As that rate came down year-by-year, we maintained the high mortgage payment, and so paid it off in less than half the originally calculated time.

Smith has managed to turn his tale of accounting, interest rates, monetary policy and such into a page turner. That’s the effect of both the large number of stories about his interviews with bankers, economists, money market gurus etc, and of his style. He tells the story of his investigations, which reveals the story of the two huge rounds of inflation and the restructuring of the global banking system. He writes high journalism: Factually as accurate as he can make it, larded with analysis and theory, all conveyed as his personal experience and thinking.

A side effect of reading this book is a better understanding of why Trump’s tariffs (if sustained) will lead to another round of inflation, and probably another restructuring of the global banking system. Another effect is a clearer insight into international trade: Basically, it’s bartering, with the values of the goods in the contracts and account books denominated in US dollars. A possible (and based on Smith’s explanations IMO a likely) outcome of the tariffs will be the loss of the US dollar’s status as the global currency.

Highly recommended. ****

Footnote: As of this posting, Trump has rolled back tariffs on several types of food. It seems the tariffs have begun to bite, and the voters are unhappy.