Topic 1 - money and its history

Question 1

Before money was used

Answer 1

1) People lived in small groups in isolation and did not share anything. They produced everything that they needed
2) Then someone was better at doing something than someone else. This lead to “specialization”
3) This lead to necessity of trade

Question 2

Why barter cannot function in the long run

Answer 2

1) People have to be needing something for this to work out.

2) Relates to the improbability of having the same consumer wishes at the same time and at the same place.

Question 3

Inconvenience of barter –> intro to money

Answer 3

1) Availability of wanted goods
2) Need to determine exchange rates between all pair of goods

A special good can be selected to solve these issues - money.

Money is the facilitator of trade, the common measure of goods.
Money allows delay in the economy.

Question 4

Requirements for a good to me counted as money

Answer 4

1) Durability
2) Density
3) Difficulty to find. Needs to be rare
4) Homogeneity
5) Possibility to divide it
6) All economic actors should accept it

• Camels, gold, silver, alcohol has been used for exchanging.
• Cigarettes (prison).

Question 5

What is fiat money?

Answer 5

• a currency established as money by government regulation or law.
• The term derives from the Latin fiat (“let it become”, “it will become”) used in the sense of an order.
• Differs from commodity money and representative money.
  (Commodity money is created from a good, often a precious metal such as gold or silver, which has uses other than as a medium of exchange (such a good is called a commodity)

(representative money simply represents a claim on such a good)

Question 6

IOUs

Answer 6

piece of paper that says “I owe you”

Question 7

Nature of money

Answer 7

• represents a social relation
• does never exist in itself –> it is a representation of values
• money has value only because you decide that any good is worth the value that you attribute to it.
• money is simply a measure