What is Money And how to Make it Work Better for Everyone by Ray Galvin (Review)
First of all, some things I should mention.
- Ray is a good friend so my review may be considered biased.
- Although I am much better than I was I am still under par from my brain surgery, 18 months ago. (see Pause due to Head Injury ). So it is possible that I have not understood this book as well as I would have done under other circumstances.
Almost all of us use money and most of us think we have a clue about how it works if only how it can be earned and how it can be used to buy things we need or would like to have. However, some things are intrinsically pretty hard to understand. For example:
- What is money?
- What causes inflation?
Galvin goes a long way to answering these questions. Along the way he discusses taxation (should we tax income or wealth), crypto currencies and the role of government and central banks.
You may regard these questions as rather philosophical than practical. Even so, they are important because we live in a democracy and what the government does affects our day to day lives. Inflation erodes the value of our savings, even if our income increases pro rata. If we are to make sensible decisions on who to vote for it helps to understand the implications of government policy on our financial situation.
The answers to these questions are sometimes difficult to understand but Galvin makes a good stab at explaining it. I only got thoroughly lost in two chapters – one of which was about foreign exchange which I know from previous reading is fearfully complicated.
I particularly liked his story about when he was a child (aged 5 years) exchanging IOUs with his siblings for goods and services such as cleaning shoes. Effectively they had invented a form of currency, rather like LETS (Local exchange tokens) (see https://www.letslinkuk.net/). The concept of money as an IOU was not new to me but he does explain it rather well.
I remember being baffled as a child by the text on bank notes ‘I promise to pay the bearer on demand the sum of XX pounds’. This made no sense to me then because I took it to mean that the bank note which proclaims to be worth £1 is not actually worth anything but something else is. In practice the bank note is a medium of exchange. It has value because we have certainty that it can be traded for something else of similar value. You may quibble that IOUs and bank notes with the same face value are not always worth the same amount. This is because the value of coinage depends partly on how much you trust the issuer. If you do not believe your brother will actually clean your shoes then his IOU is not worth very much.
Another amusing idea mentioned in the book is that government issued notes and coinage has value because you can use them to pay your taxes. This is one reason that the value of our currency does not fluctuate wildly, or at least less wildly than other currencies such as Bitcoin. Long ago the value of our currency was fixed to that of gold by the ‘gold standard’. Now, the value of gold fluctuates. For example, over the last 5 years the value of gold has increased by a factor of about 3 (from £1,400/ounce?? To just over £4,000/ounce) [1]. This increase is mainly a result of the way gold is often used as a hedge against other currency risks [2]. The quantity of gold on world markets increases only slowly through mining so the price of gold primarily reflects demand. (see also [3]. When there is uncertainty that other forms of money will retain their value then demand for gold, which is regarded as relatively stable, increases.
The surest way to trigger inflation is to print lots of ‘money’ because if you increase money supply without increasing the quantity of goods and services to buy then prices go up. There are more subtle controls involving, for example, interest rates – increasing the interest rate for savings and loans makes saving money more rewarding and loans more expensive so this encourages savings and discourages demand for goods.
However, I was surprised to read that the government has only limited control of money in the system. Although it can increase money supply (for example by buying back government bonds) it has little influence on how the money thus injected into the system is spent (except for services under direct government control such as the health service). So it is not possible to inject money for a particular purpose such as apprenticeships or house building. In fact the government cannot even control the money supply; anyone can create money by issuing an IOU as Galvin demonstrated with his childhood reminiscence.
I was a bit surprised that there was no mention in the book of the velocity of money. This is the rate at which it circulates. Even if the government did have direct control of the money supply it has limited influence over whether people spend it quickly or save it for later. We normally think of GDP as the financial value of goods and services produced in a year (at least I do). However:
GDP = money supply x how often it is spent
The government can try to slow down the economy by (for example) raising interest rates on savings to discourage spending but this is an indirect effect and there are other side effects. It also takes time to take effect and from my engineering lectures I know that smooth control of processes involving time lags is difficult. (Imagine how it would be to drive a car if when you pressed the accelerator or brake pedal the effect was delayed for 5 seconds. You would end up moving in kangaroo leaps!
I was boggled to read in Galvin’s book that in ancient Greece, wealthy citizens were sometimes required to fund public projects – and that this policy (called liturgy) was accepted because it was so prestigious to be involved. (see Galvin’s book and also [4] )
The funds were typically spent on religious festivals or naval expenses.
We expect very wealthy individuals to give substantial donations to worthy causes but the idea of this being compulsory rather than voluntary is somewhat shocking. Perhaps one should regard it as a form of taxation. We also expect wealthy people to pay more taxes than the average and governments to spend this on provision of services that are of general benefit such as cultural events, education and national defence.
The book title suggests it will answer the question as to how money can be used to ‘work better for everyone' but this is a rather vague aspiration which Galvin has not directly defined. The last chapter includes proposals for managing the government deficit and money supply in order to support GDP growth and control inflation. Some would argue that GDP growth is not necessarily a good thing but I think it is widely accepted that GDP contraction is very bad [5] High inflation is also bad because it erodes savings and makes it difficult to plan for retirement.
In this book Galvin has taken on a very difficult subject which is none the less highly relevant to pretty much everyone and made it (mostly) accessible. He has used stories where possible to illustrate his message, sometimes personal, historical or even from literature (such as Shakespeare’s The Merchant of Venice) My main gripe is that the book does not have an index. It does have an extensive bibliography which is very welcome.
References
[0] What is Money and how to make it work better for everyone (Ray Galvin, 2026)
[1] Gold Price (Royal Mint)
[2] Why has the price of gold risen so sharply (Econofact, March 2025)
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