TL;DR: It's structural. A monetary system evolves in the interests of its most influential agents. View a simple model.
I'm full-time carer for my disabled mum. Whatever my occupation before, this is my role now. In earlier times, I was technical and training lead on a number of transnational accounting projects; Enterprise Resource Planning (ERP) to use the lingo. Working full-time meant that I was able to make regular contributions into a self-invested private pension (SIPP). But that was then, my SIPP was dormant, forgotten for years. Then one day I received an email. "Your SIPP has a high proportion held as cash" ran the headline. It was my SIPP provider. They continued, "... This might be part of your strategy, but it can drag on returns." Strategy? I didn't know whether to laugh or cry. What strategy? I ignored it, initially. A high proportion of not much is not much. But it gnawed at me. I should do something now. A low risk, low cost investment. A tracker; a government bond fund perhaps. But which one?
An old subscription to the FT online hadn't yet expired. I did a little reading. Oh boy... So much drama; vigilantes threatening governments; galloping markets to hit the fence. Why the excitement? Of course, secondary markets love tension. But still, weren't government bonds supposed to be boring? Lending to governments that have been around for a very long time.
What were government bonds in a global financial system? I needed to read more - a lot more. And that's fine, as I love a good story.
I enjoyed undergraduate economics. I remember lectures articulating the efficient markets hypothesis and the risk free asset. I was a believer. Then I read Crashed; an analysis of the 2008 financial crisis written by Adam Tooze.
Crashed pulls no punches. A giant wave looms. Over Main Street? Wall Street? Both, as it happens. It's compelling imagery, yet troubling; the equivalency of planetary-atmospheric and political-economy systems. Image, merely glimpsed, has the power to frame both problem and solution. This is not to criticise Crashed. A bestseller must catch the eye. And Tooze's book is outstanding. Let me explain.
Essentially, ERP is a system of cross-domain workflows. Procedures either commit or rollback debits and credits marked up and down in database tables. ERP is a system of cables, routers and blade servers running round the clock in highly secure data centres you'll never know about. It's structure synthetic, programmed. Accounts neither moved, ebbed nor flowed anywhere. And yet, we regularly discussed infocubes and in-memory structure; readily accepting the synthetic as natural. It's human. Metaphor is powerful, invaluable and inescapable.
The system crashed. But did it? A system of sound infrastructure running programmatically fault free stored procedures. Maybe the system performed as designed. Its outcomes, of surprise to some, but not to others. Of course, something went wrong. But in the core transactional system? What is this system Tooze describes? I needed to step back; read some history.
Some fascinating titles presented, notably, David Kynaston's 'A History of the Bank of England'. Yet it was a search stumble across the wonderful Making Money written by Christine Desan that I count as most fortuitous. I bought the book. My worldview changed. Here was the historical context I needed; a story about the evolution of the English monetary system though the ages. A story blending perfectly with another search stumble gem, Monetary Economics written by Wynne Godley and Marc Lavoie (G&L). In their book, G&L present a suite of accounting models each describing an evolving monetary system. With sectoral accounting at the core, system explanations and personality shone out.
Later, the fantastic work being done by the economists at the University of the West of England, Bristol came into view. From this reading we learn the great monetary institutions of state - and their agents - have engineered modern money into market-based finance. A pro-cyclical, collateralised, monetary system. A narrative to absorb completely the theme of Tooze's tome.
Neither Desan's 'Making Money' nor G&L's 'Monetary Economics' will, I guess, reach a mass audience. For those they do reach there's no going back. While generally accepted paradigms continue to rage against the dying of the light, new awareness dawns. Metallism narrates the compound money of earlier times. Yet still, it was a system - a monetary system - that bestowed on precious metals a cash price. Today, government with the authority and power to create currency will issue bonds in order to drain reserve balances and produce collateral. Government liability curves, an expression of system size and velocity, guide a bond price sensitive financial superstructure.
Start at the beginning.
No model is the world. The well known aphorism "all models are wrong, but some are useful" comes to mind. I make every effort to ensure the accounting at the core of my agent-based models faithfully reproduce G&L descriptions. Models spring from my nascent, bounded, comprehension of reading materials describing a simple monetary system. I hope they're useful.