From Florence to Houston

Below is an outline for the second chapter as represented in the table of contents for my projected book.

I've already done the same for the first chapter. We will focus here on the institution of lending money for a fixed rate of interest: this is "usury" or "riba" to its foes.

I. Renaissance Florence
A. Theology, Damnation, and Evasion
B. The Rise of the Medici

II. The North of Europe
A. Luther on usury
B. Calvin
C. Calvinism in the Lowlands
D. London and the Classical Economists

III. Colonies and States
A. Debt in the Colonies
B. Debt and the Founders
C. The Post-Classical Economics of Henry George

Here I will make in essence the points I sought to make in this blog on November 19, 2010.

D. Leverage, the Business Cycle, and Enron

The difficulties that arise when finance becomes too disconnected from the physical world, when an excess of liquidity gives rise to dreams of infinite leverage, are well illustrated in the rise and fall of the now infamous energy-trading firm, and it is a cautionary tale we should heed even this early in our study.

We have addressed thus far the fundamental ideas of speculation and leverage (i.e. debt). We need to introduce the final key idea from our subtitle, regulation: and we will do that in the next chapter.

My Book Proposal

Listen up publishers. Here's a book proposal.

I'd like you to bid on rights to my not-yet-complete manuscript, Gambling With Borrowed Chips: The Role of Leverage, Speculation, and Regulation in a Modern Economy.

I am willing to accept millions, though hundreds of millions would be nice.

When complete, this will be a scholarly ms of approximately 76,000 words, with approx. 30 figures in the text, and extensive endnotes for each chapter, an index, and a bibliography.

As I complete outlines of each chapter in subsequent posts, I'll use the chapter titles here as links, for convenient navigation.

Synopsis

Speculation performs at least three indirect but valuable roles that assist a broader society in the wise allocation of resources: it allows commercial parties to hedge their positions; it uncovers the real value of assets; and it creates accountability for corporate managers, who in the absence of active speculators are better positioned to entrench themselves.

Speculative activity can become excessive and abusive -- the best check upon this, though, is not through regulation, much less criminalization -- the best check is the systemic one of a hard money policy.

The events of recent years -- as they have been popularly misunderstod -- have delegitimized this valuable activity, and that has given rise to a lot of real and threatened policy consequences that have done or would do more harm than good. Or, to be more precise, a very old stigma of the speculator as an anti-social parasite has re-emerged.

Outline

Introduction

Part One: The Value of Speculation
Chapters
1. The old stigma: speculators as parasites
2. From Florence to Houston
3. Equity and Prop Desks
4. The Crisis of 2008
5. Commodities and Their Derivatives
6. Betting on Foreign Exchange
7. Accounting and Valuation
8. Corporations and Accountability.

Part Two: Important Abstractions
Chapters
9. Efficient Capital Markets, A Tidy Theory.
10. ECMH, The Much Sloppier Practice.
11. On Greed and Money.
12. A World Without a Monetary Superpower

Part Three: Some Policy Consequences
Chapters
13. Bankruptcies and Rescues.
14. Public and Private Pensions.
15. Home Ownership.
16. Energy.
17. Conclusion.