With the massive expansion of trade that accompanied the discovery of the Americas and the growth of nation states in Europe in the 16th and 17th centuries, individuals began to think in more detail about the idea of economics. They variously suggested that controlling the level of imports (mercantilism), trading only in the goods a country made best (comparative advantage), or choosing not to intervene in the markets (laissez-faire) might improve their people’s economic well-being. In the 18th century, economist Adam Smith proposed that government intervention—controlling wages and prices—was unnecessary because the self-interested decisions of individuals, who all want to be better off, cumulatively ensure the prosperity of their society as a whole. In addition, he believed that in a freely competitive market, the impetus to make profit ensures that goods are valued at a fair price.
Money has fulfilled this vital role for thousands of years. Before its invention, people bartered, swapping goods they produced themselves for things they needed from others. Barter is sufficient for simple transactions, but not when the things traded are of differing values, or not available at the same time. Money, by contrast, has a recognized uniform value and is widely accepted. At heart a simple concept, over many thousands of years it has become very complex indeed.
At the start of the modern age, individuals and governments began to establish banks, and other financial institutions were formed. Eventually, ordinary people could deposit their money in a bank account and earn interest, borrow money and buy property, invest their wages in businesses, or start companies themselves.
Today it is a nation’s government and central bank that control a country’s economy. The Federal Reserve (known as “The Fed”) is the central bank in the US. The Fed issues currency, determines how much of it is in circulation, and decides how much interest it will charge banks to borrow its money. While governments still print and guarantee money, in today’s world it no longer needs to exist as physical coins or notes, but can be found solely in digital form.
This book examines every aspect of how money works, including its history, financial markets and institutions, government finance, profit-making, personal finance, wealth, shares, pensions, Social Security benefits, and national and local taxes. Through visual explanations and practical examples that make even the most complex concept immediately accessible, How Money Works offers a clear understanding of what money is all about, and how it shapes modern society.
People originally traded surplus commodities with each other in a process known as bartering. The value of each good traded could be debated, however, and money evolved as a practical solution to the complexities of bartering hundreds of different things. Over the centuries, money has appered in many forms, but, whatever shape it takes, whether as a coin, a note, or stored on a digital server, money always provides a fixed value against which any item can be compared.
In his 1935 book General Theory, John Maynard Keynes argued that government spending and taxation levels affect prices more than the quantity of money in the economy. He proposed that in times of recession a government should increase spending to encourage employment, and reduce taxes to stimulate the economy.
For investors trying to decide whether a particular company represents a good investment opportunity, net income helps them to understand the way the business is run and is a guide to the real profit the company is making, rather than just the revenues it is generating. Revenue earned is the starting point, and the cost of tax, banking and interest charges, depreciation of assets, staff costs, and any other expenses involved in operating the business are deducted from this figure.
If businesses were simply to report the money they had earned, this would give an unrealistic picture of the underlying health of the business. For example, a business could be earning plenty of revenue, but also incurring a lot of expenses via investment in new markets, premises, or machinery at the same time. In order for investors to work out whether a company is financially healthy, therefore, they need to be able to see how it is managing costs, and whether it is spending money in the right way.
Net income is a good way to understand how much real profit a business is making, and whether that profit is likely to be sustained in the future. It is also a way of calculating earnings per share (see “Need to know”), which investors use to weigh up the value of a company and its shares. Analyzing the balance of revenue earned against the cost of tax, investment, and other expenses is one of a number of ways to assess how a company is faring compared with its competitors, and if it has a sound financial basis going forward.
Quality content, but not recommended on Kindle. I don't recommend reading on Kindle (paperwhite in my case) because every page is displayed as an image, so there is no way to search for words or highlight sentences. Also the font size is very small. I recommend getting a physical copy, not a Kindle version.
A great little visual tutorial that perfectly explains how money works at a high level. Informative
An incredible book. I learned a lot and enjoyed it from the illustrations. I'm buying How Technology Works.
A very informative book that is easy to read / understand. These books hold the reader's attention well.