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How Money Works - THE FACTS visually explained

How Money Works
I have to admit to an eccentricity; I'm one of those people fascinated by how things work in reality rather than how they work in theory, and at the top of my list of fascinations is money. 
It isn't enough for me to have studied about the financial system in graduate business school, or read papers in journals related to financial markets -- because, by and large many of the abstractions in these papers and texts are wrong. 

But I'm a geek in this regard; I'll happily pore over text like Godley and Lavoie's Monetary Economics, or Stigum's Money Markets, but what about the rest of the population that isn't (thankfully) as eccentric like yours truly, but just wants to be better informed? This is where DK's How Money Works comes in. 

DK takes a page out of Simon Mitton's advice to the late, great Stephen Hawking, prior to his preparation of A Brief History of Time, by eschewing equations in the exposition of some complicated material, In Hawking's case, it was explaining the vast mysteries of the cosmos, in the case of DK's contributors, it was expounding upon the monetary economy and how money flows through it at a micro and macro level, domestically and globally.


Government Finance

 and Public Money

In How Money Works, everything is explained visually. I would go so far as to say that in reality, this is a better approach to learning about money than the standard approach employed in business school or the social sciences at the undergraduate level. Unless a student has the intent to graduate in a quantitative discipline, and will utilize those quantitative skills in their vocation, there's no point in the standard approach, focused heavily on mathematical models and abstraction. 


Let's take a look at what I'm getting at here. On Economic theories and money, on pages 22/23, five essential bedrock theories are explained, but rather than obfuscation with algebra, there's a combination of clean graphics and understandable prose. 
Economic theories
and money


Need a quick and dirty refresher on corporate accounting, financial instruments, markets, and institutions? No problem, flip to the section on Profit Making and Financial Institutions (pp. 24-83) where you'll get a treatment of financial shenanigans under Smoothing earnings (p. 34), but also understand the differences between Depreciation, amortization, depletion (p. 32) on the one hand, and Expensing vs capitalizing (p. 30) on the other.

One area where people are particularly uninformed, and helped in no small part by the rhetoric of politicians, and so-called business television (which is often abysmal) is Government finance and public money (pp. 84 - 147). Even more recent strategies such as Quantitative Easing (p. 124) are summarized. 
Personal Finance

As importantly, there's an expansive section on Personal Finance (pp. 148 - 229), something that is particularly timely today with ever increasing household debt loads amid stagnating incomes.

Finally, in keeping with the times, there are pages introducing the concepts of money in the digital age, where our concept of what is money is changing. For our grandparents and before, money was backed by a commodity, such as gold. For recent generations, we think of money as the currency in our pockets, or the deposits in our bank accounts. 


Cryptocurrency
For children today, money may be the tapping of a smart phone against a terminal, while in the future, it may be a crypto-currency on the blockchain or in a government database with a trusted institution. 

Whatever we think of it, money is ultimately about trust. It is a social relation. The great takeaway from the book How Money Works is to make it --the financial system, and the workings of global finance-- more understandable. 

Anyone equipped with this knowledge prior to and in the aftermath of the global financial crisis would have taken the hysteria by talking heads on channels like CNBC, warning about impending hyperinflation and currency collapse, with massive bags of salt. This readable and accessible book makes a terrific introduction for those who want to understand more. 

Recommended. 👍
⭐⭐⭐⭐
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Reviewed by Arijit Banik, who firmly believes that a healthy questioning of conventional wisdom leads to a better informed citizenry. 

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