A fun-to-read primer on banking and finance

19th century citizens were as bewildered and dismayed by 'modern' finance as we are. Enter Walter Bagehot, man of letters and editor of The Economist, who decided to clear up the confusion by writing a down-to-earth guide on what really goes on in the money market. His classic, 'Lombard Street', is surprisingly relevant and brisk reading today. The full text is available online.

For modern audiences, I recommend the following chapters:

1. Introductory - this chapter shows how a money market, for all its faults, can be of benefit to a country. It also explains how fractional reserve banking works.

2. A general view of Lombard Street - explains how reserves are managed by the central bank and other banks. This is done for both gold-standard and unbacked, fiat currency.

5. The mode in which the value of money is settled in Lombard Street - the title says it all. This short chapter explains how the value of money is determined in a money market, and goes into detail about exactly how much power the central bank has in this regard.

6. Why Lombard Street is often very dull, and sometimes extremely excited - this chapter explains business cycle fluctuations: booms and busts, good times and recessions. All from the point of view of the money market, of course.

The rest of the (short) book, while very interesting, relies too much on the particular circumstances of the time and country in which it was written for me to be able to recommend it as general reading.