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The Velocity of Money, a thriller May 27, 2009

Posted by thedukeofurl in Economics.
Tags: , , ,

“Velocity of money” is a term referring to the number of financial transactions in a given moment of time.  For a stock exchange, the time might be measured in minutes, but for the average consumer, it might be a day or a week. The more financial transactions there are per unit of time, the greater the velocity.

However, the title of this post refers only incidentally to financial transactions. It is the title of a thriller by Stephen Rhodes (aka Keith Styrcula) published in 1997. The plot concerns a conspiracy to bring about a crash of the financial markets using a computerized trading program based on the derivatives market, and begins, as thrillers do, with a body dropping out of a window of a skyscraper onto and into the roof of a NY cab, in this case the body of a banker.

What might come to the reader’s mind is an image of the suicides that took place in 1929, the time of the stock market Crash, sometimes referred to as the Great Contraction to distinguish it from the Great Depression. This, of course, is no suicide, but murder.  And the life of our hero, a securities lawyer at a Wall Street firm, is naturally eventually in danger, and his wife is newly pregnant.

The relevance of the novel for our purposes, however, is not its aspects as a thriller, but its prescience in suggesting that the ongoing 1990s bubble could burst, something denied by many at the time, though there was a bit more than a hiccup in this period.  Rhodes worked for an off-shore financial firm and influences for the thesis of collapse are some of the usual suspects, such as John Kenneth Galbraith and Hyman Minsky, but also Alan Greenspan, C. P. Kindleberger (an expert on the Depression), and the computer hacking magazine, Phrack (a recent article is Hacking your Brain: Artificial Consciousness).

The stock market crashed dramatically in October 1929, not as a consequence of some shadowy conspiracy, but through independently converging causal chains, though the precise character of this causal network and it’s role in the disaster is still a matter of hot dispute. Is a conspiracy to bring down an entire financial system plausible, even if it were possible?

It is difficult to see how it would work. Small-scale conspiracies carried out on individual currencies and sets of institutions have taken place historically.  The primary problem of a conspiracy on this scale would seem to be the difficulty of getting everyone, who normally are in competition with one another, to cooperate to bring down a system from which they are gaining enormous benefits. It is difficult to see how any of these individual players could see such an action as being in either their personal or collective interests.

I was happy to suspend disbelief for the enjoyment of the read and, although Rhodes makes the events seem somehow plausible, I thought then and I think now that such a conspiracy is unlikely. Neither the Great Crash of 1929 nor the Credit Crunch of 2007-08 were the consequences of conspiracies to bring the events about, but rather the inevitable consequences of the way business was being carried out in what had become the normal way every day.  While it might be more satisfying to blame a few conspirators for the “interesting” times we are currently living in, it seems that greed, ego, ambition, collusion, incompetence, and even more than a little fraud, according to some accounts (and not just by the Bernie Madoffs), are the primary engines of our current catastrophe.


For an extensive list of such novels, arranged by genre and then by author, see http://projects.exeter.ac.uk/RDavies/bankfiction/bigbang.html by Roy Davies. You may be surprised, as I was, to discover that one of the great expositors of poltical economy, John Kenneth Galbraith, wrote two novels.



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