- Money was an incredible invention
- The barter system pre-dates it.
- Co-incidence of wants required for a trade
- Money solved that problem - it has 3 purposes
- Medium of exchange
- Store of value
- Unit of accounting
- Value stores
- Money vs Fixed Assets
- Liquidity
- Durability
- Acceptance by others
- Medium of exchange
- Major currencies and local currencies
- Specialty currencies
- What happens when money can’t be used? Look at Zoos:
- Zoos don’t want to spend money on animals for a few reasons: The historically brutal practices in acquiring animals, setting prices for poachers and permits needed for buying and selling animals (Endangered Species Act).
- In their books, they usually set some nominal value for each animal like $1
- They use a barter system on a special website to facilitate the transactions
- Value of a dollar (or euro, yen, etc)?
- At a fundamental level, what is replaced by barter - i.e. $100 is worth 8 shirts
- Fiat currency
- Inflation and deflation
- What is replaced by barter changes - you can buy more or less
- With inflation, you should spend your money now while you can
- With deflation, you should hold on to your money as long as you can
- The value of a dollar is an aggregation of the prices of everything in the market
- Inflation is caused by:
- An increase in the money supply, for example printing more money
- A decrease in the size of the economy without reducing the money supply
- Deflation is caused by:
- Economic growth without additional money supply increases
- Reducing the money supply
- Inflation is caused by:
- A dollar then represents a fraction of the overall economy in which it operates.
- Looking just at GDP, one dollar, today, is worth about 1/21.73 Trillionth of the US economy
- The value of the dollar is really a fraction of a larger economy because of the petrodollar, dollar denominated trade deals, etc
- A dollar can be used to pay your taxes
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We explore the purpose of money, how it is valued and how it came to be.