Money and Finance: Crash Course Economics



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Imagine you live in a world without money, and you’re a dentist that wants to go buy a car. First, you need to find a bunch of auto workers who need dental work.

And if these workers don’t want dental services and prefer being paid in something else like flat-screen TV’s, then you have to find TV manufacturers that have toothaches. Try posting that on Craigslist… This is called the “barter system”, and it takes a lot of time and energy.

Of course, many people still barter for stuff, but for most transactions, we use money.

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Which is a way more efficient way to do business. The people who really need dental care will pay you with money, which you can now use to buy a car. Economists point out that money serves three main purposes. First, it acts as a “medium of exchange”. It’s generally accepted for payment for goods and services. Now, that medium of exchange means we’re not stuck in the barter system. Next, money can be used as a “store of value”.

The reason why a dentist doesn’t normally accept fruit or baked goods is that you can’t save those things up to go buy things like cars. Plus, bananas go bad pretty quickly in a safe deposit box. Money also serves as a “unit of account”. We don’t measure the value of cars in bananas, muffins, or root canals. Instead, we use money because it’s a standardized metric that allows us to measure the relative value of things.

Most people assume that money is just cash and coins, issued and endorsed by a government. Coins have been used for thousands of years, and they’re a great example of money, but technically the money is anything that’s used as a medium of exchange. For example, cigarettes were used as money in prisons until smoking bans were put in place.

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Nowadays, prisoners use postage stamps and even small packages of mackerel as currency. Animals like cattle and sheep also sack of grain, all these have been used as money. Some societies even used feathers or shells. The indigenous people on Yap Island in the Pacific Ocean used money called “rai stones”. These were large doughnut-shaped disks made out of limestone. The largest ones are around ten feet wide and weigh four tons.

The point is what economists consider money is anything that’s accepted as a medium of exchange. And that’s changed a lot over time. Today, cash and coins are often used as money since they’re easy to carry around, physically durable, and hard to counterfeit.

But a lot of money today doesn’t end up in anyone’s pocket, or wallet, or duffel bags, or even wheelbarrows.

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It moves around electronically. Increasingly, people get paid in the form of checks or direct deposits into their bank. A lot of our money isn’t physical. It’s digital.

It exists on some bank’s computer. And as long as that computer is secure, and the zombie apocalypse doesn’t permanently knock out the power, and your nation’s monetary system is functioning as it should, those electronic dollars do all the things they’re supposed to do.

Another form of digital money that you often hear about is Bitcoin.

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