Annual Review of Economics - Volume 16, 2024

Debates about the nature and economic role of money are mostly informed by evidence from the twentieth century, but money has existed for millennia. We argue that there are many lessons to be learned from monetary history that are relevant for current topics of policy relevance. The past is a source of evidence on how money works across different situations, helping to tease out features of money that do not depend on one time and place. A close reading of history also offers testing grounds for models of economic behavior and can thereby guide theories on how money is transmitted to the real economy.

David Ricardo initially believed machinery would help workers but revised his opinion, likely based on the impact of automation in the textile industry. Despite cotton textiles becoming one of the largest sectors in the British economy, real wages for cotton weavers did not rise for decades. As E.P. Thompson emphasized, automation forced workers into unhealthy factories with close surveillance and little autonomy. Automation can increase wages, but only when accompanied by new tasks that raise the marginal productivity of labor and/or when there is sufficient additional hiring in complementary sectors. Wages are unlikely to rise when workers cannot push for their share of productivity growth. Today, artificial intelligence may boost average productivity, but it also may replace many workers while degrading job quality for those who remain employed. As in Ricardo's time, the impact of automation on workers today is more complex than an automatic linkage from higher productivity to better wages.

We survey the literature on global capital allocation. We begin by reviewing the rise of cross-border investment, the shift toward portfolio investment, and the literature focusing on aggregate patterns in multilateral and bilateral positions. We then turn to the recent literature that uses micro data to document patterns in global capital allocations. We focus on the importance of the currency of denomination of assets in international portfolios and the role that tax havens and offshore financial centers play in intermediating global capital. We conclude with directions for future research in this area.