New Zealand Herald February 2000.

Keywords: Macroeconomics & Money; Political Economy & History;

I wanted this to be a good book. It was a super idea to have a “biography” of the British pound which has been around for a thousand years and was once the world’s most important currency. There is so much mystery about money, that a good book would improve public understanding and reduce the mysticism.

For instance our $2 coin has a material value of 2 cents, and costs about 10 cents to produce. (A $100 note costs about the same.) Why do we treat the $2 coin as worth ten to a hundred times more than it is worth? It is because it acts as a medium of exchange. People have confidence in the currency doing that job, while the issuer of the currency (the government) accepts it as legal tender in its financial settlements (such as the payment of taxes). We dont need the coins to be worth their intrinsic value, and it would be a terrible waste of resources if they did. (The profit, or “seigniorage”, on issuing token money goes to the government, reducing taxes.) But token money is not a real store of value in the way intrinsic money is. If barbarians are about to take over the country, dont bury a jar of $100 notes in the garden. The treasure trove will be valueless when the currency is changed. Better bury gold coins (or transfer the money overseas).

You need to know the previous paragraph, and a bit more, if you want to understand the history of money. Unfortunately David Sinclair, the writer of The Pound: A Biography, makes no attempt to explain those or other basic issues, such as the gold standard. Instead the text confuses money with such fundamentally different notions as currency, cash, income, wealth, investment and just about anything else which has a pound sign attached to it. The writer, who has written biographies on Edgar Allen Poe and two King Georges, has only a tenuous grasp of the economic history of England, and may well be unaware of classic studies such as David Fischer’s history of inflation and deflation, The Great Wave.

Apparently Sinclair has been executive editor of the Financial Mail on Sunday, from which one may conclude just how little understanding of economics and finance one needs to do that job. He expresses the most extraordinary opinions, including that Sir Francis Drake’s piracy was a forerunner of the modern overseas investor. Henry VII is compared with Margaret Thatcher – with no sense that prosperity boomed for Henry because at last England was at peace, and for Thatcher as it exhausted the North Sea oil reserves. (Sinclair says that towards the end of his life Henry became “paranoid, uncommunicative and excessively mean.” There may be parallels.)

Sadly, this is not a book to be recommended. The best read I know on the general topic remains J.K. Galbraith’s Money.