The Origin of Banking

There is a just-so story that explains the existence of money. Before money, the story goes, we all had to barter for the goods we wanted. If I wanted wheat and had chickens, I needed to find someone who wanted chickens and had extra wheat. Money solves this “double coincidence” problem by letting me sell my chickens to buy your wheat. If we didn’t have money we’d invent it immediately.

The problem with this simple story is that it may not match history. There has never been a pure barter economy, according to anthropologists. Pre-money economies were organized in a variety of other ways, including central planning, informal gift economies, and IOUs denominated in cows.

Sir Jon Hicks’ classic A Market Theory of Money fills this gap.  Hicks was a major figure in 20th Century economics who eventually won a Nobel, and here at last is a straightforward story that explains why we have banks at all. It’s still not clear to me that this account is historically grounded – or that we can understand what a modern bank does, or should do, on the basis of historical parable — but at least this account provides a better history than barter.

With that cautionary note, here’s Hicks’ story of banking. He begins in a world where money is already the usual form of payment, and breaks down a transaction into three pieces: Continue reading The Origin of Banking

What Data Can’t Tell Us About Buying Politicians

Corruption in the classic sense is when a politician sells their influence. Quid pro quo, pay to play, or just an old fashioned bribe — whatever you want to call it, this is the smoking gun that every political journalist is trying to find. Recently, data journalists have begin to look for influence peddling using statistical techniques. This is promising, but the data has to be just right, and it’s really hard to turn it into proof.

To illustrate the problems, let’s look at a failure.

On August 23, the Associated Press released a bombshell of a story implying that Clinton was selling access to the US government in exchange for donations to her foundation. I’m impressed by the AP’s initiative in using primary documents to look into a serious question of political ethics. But this is not a good story. It’s already been criticized in various ways. It’s the statistics I want to talk about here — which are, in a word, wrong. (And perhaps the AP now agrees: they changed the headline and deleted the tweet.) Here’s the lede:

At least 85 of 154 people from private interests who met or had phone conversations scheduled with Clinton while she led the State Department donated to her family charity or pledged commitments to its international programs, according to a review of State Department calendars

There’s no question this has the appearance of something fishy. In that sense alone, it’s probably newsworthy. But the deeper question is not about the appearance, but whether there were in fact behind the scenes deals greased by money, and I think that this statistic is not nearly as strong as it seems. It’s fine to report something that looks bad, but I think news organizations also need to clearly explain when the evidence is limited — or maybe not make an ambiguous statistic the third word in the story.

So here, in detail, are the limitations of this type of data and analysis. Continue reading What Data Can’t Tell Us About Buying Politicians