The Little Money Book (Alastair Sawday's Fragile Earth) [Paperback]

"David Boyle is the finest radical voice of this generation."

The Little Money Book is designed to tell readers where money comes from, what it means, what it's doing to the planet, and what we might be able to do about it. Money, and the complex system that makes it work, is a man-made product that we invented, and yet, like Frankenstein, it has all of us in its grip. From the poorest to the wealthiest, we all worry about money. Among the topics covered in the book are ownership, globalisation, third world debt, green taxes and the role of the International Monetary Fund and World Bank. Boyle succeeds in creating a book the illuminates the emerging debate on how money can at last, be made to work for the people, and not against them.

From the poorest to the most wealthy, we worry about money. We worry about our bank balance, our shares, our retirnement, our bills. It's a strange peculiarity of modern life that we struggle with money as much as we do. We live in the richest societies in the history of humanity, yet we spend more time than ever worrying about money. This Little Book is intended to redress the balance of power a little. It isn't like the glossy financial guides pressed into our hands by sales represenatives from our banks or an economics textbook. It will tell you the truth that polictians and brokers alike prefer not to think about too much - the way they have lost control of a gigantic financial system that could enrich or impoverish us all in seconds if it chose to do so.

David Boyle is the author of a series of books, including Funny Money, The Tyranny of Numbers and Authenticity. He is an associate at the London-based think-tank, the New Economics Foundation, and a contributor to a range of newspapers and magazines including the New Statesman and BBC History.

Specially selected by the editors at Alastair Sawday Publishing

What is money and where has it come from? For something we all use so much of, and think about as much as we do, money is extraordinarily elusive. Nobody quite agrees what it is or even sometimes what it’s for.

At the end of the spectrum, it can be shells from the beach which are used as money in parts of Polynesia. It can be 12-foot round blocks of stone, used as money in the Caroline Islands – unlikely to be stolen out of your handbag but less than useful as small change. Or, if you’re in Wall Street, money can be screeds and screeds of digital information, unrelated to any product in the real world.

It isn’t that one is real and the other isn’t. Both are profoundly real and relate to the different functions that money plays. According to the economists there are three of these: as a store of value (like the stones), as a standard of value (which everyone can understand) and as a medium of exchange (like the shells – they need have no value in themselves, but help you exchange at an exact price).

Money can be anything – like cigarettes – which helps you account for what you need to buy. It can be something valuable, like coins. It can be something scarce like gold, with intrinsic value. It can be something sophisticated and elastic like shares or copper futures. It can be something that can be accidentally deleted by your bank just because someone sits on the keyboard (this happens surprisingly often). And sometimes it can be a bit of all of these, like the gold that the Spanish ‘conquistadores’ found in Latin America, extracted from the Incas and shipped back to Europe. Almost anything can be used as money.
The trouble for us is that money is a bit of all those things. It is coins and it is debt. It is credit card plastic and it is infinite bytes and bytes and bytes in cyberspace – the place where banks actually keep our deposits.

Except that for some of us, money is a good deal more elastic than it is for others. While the poorest people in the world make do with the equivalent of a few pence a day, the ‘masters of the universe’ in Wall Street and the City of London – as Tom Wolfe called them in The Bonfire of the Vanities – have a money system that is almost infinitely elastic. When the rogue financier Robert Maxwell fell off his yacht in the Bay of Biscay in 1991, he had stretched his money so much that he owed twice as much as Zimbabwe. Of all the great injustices of the money system, that is the heart of it. For some people money is stretchy, insubstantial and infinite, for others it is horribly concrete. Some people make and remake the rules; some people die by them.

But where does it come from in the first place? There is a popular misconception that the wealth of the world is underpinned by great bars of gold in the vaults of the Bank of England, the Federal Reserve and Fort Knox. Not any more it isn’t.

There is still gold in the vaults, and it is still shifted from cage to cage – each one assigned to a different world government – rather than shipped round the world. But that’s an historic anomaly and a simple way of storing some of the nation’s reserves. Central banks actually spent most of the 1990s trying to sell off their gold reserves surreptitiously without lowering the world gold price. (They failed.)

Actually, the pound hasn’t been backed by gold since 1931 at the height of the Great Depression, and the final link between money and gold was broken in 1971 when Richard Nixon finally ended the pretence that the US dollar had gold backing. Now if you read the ‘promise to pay the bearer on demand’ message on your £5 note and you take it to the Bank of England, they will simply give you another £5 note in return.

Of course there are coins, but these are made of cupro-nickel and are no longer worth anything like the 10p or 50p on the front. The total value of notes and coins produced by the Royal Mint and issued into circulation by the Bank of England and its equivalents is only a tiny 3% of all the money in circulation.

Where does all the rest come from? Well, astonishingly, nobody agrees. But most people seem to accept that it is lent into existence by the commercial banks. When you stash money in the bank, they must keep around 8% of that loan on deposit – in case there’s a run on the bank – but all the rest is lent out again many times over. In other words, most of our mortgages and bank loans are created as if by magic by a stroke of the pen.

And one day it will have to be paid back, plus interest to the bank, when it can be used as the 8% backing for yet more loans. And so it goes on. It’s a magical money-making system that is surprisingly little commented on, limited these days by only two things: the regulations of the Bank for International Settlements in Basle, and fear of having to pay it back if the loan fails – and a good 10% usually do fail.

That’s the strange truth behind modern money. We don’t mine it, we don’t find it on a beach, it bears no relation to anything real, but still some people have vast amounts of it and some people have none at all. And we hardly ever talk about it.