From the WSJ's Speakeasy blog:
...Now, S&P might seem a peculiar choice as ultimate credit court, considering their decidedly less-than-stellar performance in the mortgage crisis—giving AAA ratings to a series of toxic derivatives that ultimately crashed the world economy, causing major financial institutions to have to be bailed out by the very government whose bonds they’ve just downgraded. But what’s the alternative? The IMF? It has troubles of its own, to put it mildly.*I was not familiar with Goldsmiths (University of London). It seems like a fine place to persue that theatre major.
But a broader historical view reveals this is precisely the problem. Since 1971, when the U.S. abandoned the gold standard, and the world has been moving to a system of virtual credit money, we have been entering a new period of history. But it’s not entirely unprecedented.
In fact, contrary to popular belief, credit has been the predominant form of money in world history. In ancient Mesopotamia, elaborate credit systems predated coinage by thousands of years. Periods in which people assume that money really “is” gold and silver, let alone use cash in most everyday transactions, are more the exception than the rule. Ancient empires, for instance, used coins mainly to pay soldiers, and when those empires dissolved in the early Middle Ages, society didn’t really “revert to barter,” as its often believed, but returned to elaborate credit systems—denominated in Roman (and then Carolingian) currency that no longer actually physically existed.
The remarkable thing was that they were able to maintain these credit systems despite the lack of any reliable state authorities willing or able to enforce contracts. How did they do it? Two ways: but both involved insisting that there were values that were more important than mere money.
The first was the cult of personal honor. In most parts of the world, in the Middle Ages (Europe was only a partial exception), merchants had to develop reputations for scrupulous integrity—not just always paying their debts, but forgiving others’ debts if they were in difficulties, and being generally pillars of their communities. Merchants could be trusted with money because they convinced others that they didn’t think money was the most important thing....MORE
Oh well, good econ ideas can come from anywhere. As I've more than once on these pages economics is not a science despite appearances.
(the link is worth a click):
"WARNING: Physics Envy May Be Hazardous To Your Wealth!"
I had a similar, albeit intuitive rather than empirical, thought in the June '09 post "Climateer Investing on Carbon Trading and Traders":
...Just as an economist using the tools of science (mathematics) doesn't make economics a science, carbon traders using the tools of markets doesn't make carbon trading market based....