# Follow The Money - The Money Trail Through History Author: [[Ruben Alvarado]] ## Review The first half of this book was a struggle for me and I was close to putting it down. I try not to stop reading when I find myself disagreeing with the author; I want to hear the end of the argument. There are also a number of really great reviews that kept me interested in reading to the end. Thankfully I pushed through because the second half of the book was worth it. The authors argues that there are three types of money, and the type we use today is completely misunderstood by most people because it arose organically. He emphasizes that the function of our money is important because its at the root of modern western growth. What is most important to understand about our method of currency is that it the result of bank deposits which are created through credit creation. What gives money (deposits) value is the collateral behind the loans issued by the bank. These assets have value and could in theory be used to fulfill the liabilities of the bank (deposits) if they had to be liquidated. In effect the banking industry provides a mechanism to create liquid wealth backed by any form of asset (land, commercial bills, future cash flows) by creating a loan and associated deposits. He dismisses the need for a gold standard because it creates artificial constraints. On the other hand, a central bank is superfluous because it creates the illusion of something tangible underlying money (reserves or cash), but creates its own problems through manipulation of time-value of money. Gold and Central bank reserves are useful because they are used for inter-bank settlement but you can use any liquid asset/collateral to do this. There were many passages that provided well written, almost poetic, descriptions of money and banking succinctly. That was all in the second part of the book which was super enjoyable, helped me fill blanks in my knowledge, and provided interesting recommendations for further research & reading. The first part of the book was about the history of commodity money, and money by government decree. The author bends over backwards to make the gold standard seem almost evil and instituted by a 'Money Power'. It made me skeptical of his claims on the issues of coinage, and on the politics behind the gold standard of the 19th century. He was clearly setting up for a rebuttal against the necessity of a metallic-currency standard by pointing out the scarcity of the metal and its flaws as a physical commodity. I don't necessarily disagree with him but his argument could be made much simpler. He also attributed negative historical macro-events to the flaws of a metallic currency which was a major overreach of his argument. I highly recommend the second half, which could probably be read in isolation. ## Key Ideas - Modern money is created by creating in exchange for a stream of payments collateralized by an asset. It essentially makes liquid purchasing power backed by illiquid wealth. ## Related - [[Origin of Money value]] - [[Resources/Money and Banking/Where Does Money Come From]]