This is just brilliant, it's one of the funniest things I've ever read. I bought it after seeing a friend tweet photos of some of the pages from a NewThis is just brilliant, it's one of the funniest things I've ever read. I bought it after seeing a friend tweet photos of some of the pages from a New York bookshop. I think I'd ordered a copy before he'd even left the store....more
This is an extremely concise and informative guide to the way the banking system works in the UK. If you're like most people, you'll have one of two bThis is an extremely concise and informative guide to the way the banking system works in the UK. If you're like most people, you'll have one of two beliefs about how the banking system works:
* Banks collect deposits and use those deposits to create loans for borrowers * Banks create loans by accepting a promise to pay as an asset, and create a corresponding accounting entry to write an equal value of new money into existence, but must retain a minimum proportion of deposits backing these new-money loans
The first model is completely wrong, banks do not use deposits to fund loans. What I didn't know was that the second (the "fractional reserve" or "multiplier" model) is no longer in use either. Where Does Money Come From? explains that UK banks have no reserve requirements, and it's only confidence that a loan will be repayed that determines if a bank will make it.
The book goes into quite some detail about how banks use central bank (Bank of England) reserves to settle inter-bank transactions, the open market operations of the Bank of England, the bank account system used by the government, and many other details. While some parts are quite technical, they explanations have many examples and diagrams to simplify it. I never had trouble following the logic of the arguments.
The only weakness of the book is its bizarre decision to include an opinionated view on the nature of money, which is presented with an inconsistent argument. This goes along the lines of: orthodox economics treats money like any other commodity, just one that is widely accepted for exchange; some orthodox economists assumed that there was the possibility of perfect information about the market; perfect information does not exist [correct - it doesn't]; therefore, money cannot be treated like a commodity.
On the basis of this incorrect deduction from association of the first two premises, the authors then proceed to argue that "all money is credit". "As Marx pointed out, in the capitalist money (or capital/financing) is required prior to production" - again, false. Capital is ultimately in the form of goods invested now to increase productivity in the future. It would be no less capitalism if you invested your spare time to build a machine than if you spent money or took out a loan to buy that machine.
The final weakness in the book's description of money is the claim that because the state can demand taxes on threat of violence, and can determine how those taxes will be paid, that the state can create debt by demand for tax payment, and therefore money is debt. This completely ignores the point that freedom of choice is a fundamental requirement of free market capitalism, and that taxation no more defines the nature of money than an armed robber determines the nature of valuable goods. It just so happens that threat at gunpoint in either case increases demand for the requested commodity.
So overall, I want to give the book 5 stars for its brilliantly clear explanation, but I have to temper my review because the book was spoilt for me by the short but significant sections on the nature of money. If you're interested in how money works today, I highly recommend this book, but I'd suggest complementing it with a more consistent explanation of money, such as What Has Government Done to Our Money?. (It appears authors of short books on economics are fond of using question marks in the titles…)...more
I'll never do this book justice without writing something longer that it is itself. The mechanistic, reductionist view of the world we got from the clI'll never do this book justice without writing something longer that it is itself. The mechanistic, reductionist view of the world we got from the classical sciences (from Newton if not before) is inadequate to explain the world. It had already failed in physics, and we're seeing it fail now in our economy and ecology. If you have any curiosity about how our world works as a set of increasingly complex and differentiated, yet interdependent, systems, you owe it to yourself to read this. (I just can't say what and how much background knowledge is needed to frame it.)...more