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We explore the purpose of money, how it is valued and how it came to be.

  • 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
    • 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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