Why does money exist?
Saif M. Mehkari, associate professor of economics at the University of Richmond, examines the ease of life that comes of having some green in your pocket.
Saif Mehkari is a macroeconomist specializing in Fiscal Policy and Business Cycles. He earned his Ph.D. and M.A. in Economics from The Ohio State University and his B.A. (with majors in Economics, Computer Science, and Mathematics) from the Ohio Wesleyan University. His current research focuses on understand the effects of fiscal policy on economic aggregates such as consumption, employment, educational expenditure, etc.
Why Does Money Exist?
Imagine a world without money. With no money, you would be forced to produce everything you consume.
Making a simple chicken sandwich would require raising your own hens, growing your own vegetables, baking your own bread, and even collecting your own seawater to make salt.
Maybe you don’t have to produce everything, and instead of using money you could barter.
But bartering many goods is not easy. Let’s say you’re a carpenter who makes chairs and you want an apple. You would probably find it impossible to buy one because a chair would be so much more valuable than that single piece of fruit. And just imagine what a hassle it would be to haul several of the chairs you’ve made to the shopping mall in the hopes of cutting great deals through barter with the vendors you’d find there.
Money makes everything easy. You don’t have to produce all your own goods and you don’t have to carry your ware to trade. As a carpenter you could sell a chair for, say, $50. You could then take that $50 bill to a supermarket, buy two pounds of apples for $5 and keep the $45 in change to spend on other stuff later.
Another advantage money has over bartering is that you can use it more easily to store your wealth and spend it later. Stashing six $50 bills takes up less room than storing six unsold chairs.
Nowadays, of course, many people pay for things without cash or coins. Instead, they use credit cards or make online purchases. Others simply wave a smartwatch at a designated device. Others use bitcoins and other cryptocurrencies. But all of these are just different forms of money that don’t require paper.
No matter what form it takes, money ultimately helps make the trading of goods and services go more smoothly for everyone involved.
Comments
2 responses to “Saif Mehkari, University of Richmond – Why Does Money Exist?”
RE: Your recent show: Why Does Money Exist?
Hello,
My public radio station is WAMC. I listen to your show and just wanted to point out a few things about the token of exchange we call money.
1. Money is a store of value and we use paper money now because not only was it more convenient than carrying around chairs, but also because we understood that gold or silver or grain or whatever store of value was behind the paper tokens. More and more the tokens are only tokens with nothing behind them.
2. Digital currency is a new spin on tokens representing value and I believe opens a much more grim reality. Here are the problems:
— If currency is just zeros and ones in the cloud somewhere the ability to hack them or manipulate them is a HUGE problem. As we witnessed with FTX that value can evaporate overnight because it does not exist in reality; unlike chairs.
— Some say regulation will solve this, but do we really want the government or corporations to have ultimate control over our lives with the ability to shut off our currency anytime they want? If you’ve ever overdrawn your credit card you know this experience; now imagine that the money you’ve saved in a digital wallet is frozen or just gone!! I like my mattress thank you very much!
— Some futurists imagine a future in which your ability to use money is tied to your social credit score. If a person has unpopular ideas (like a religious belief in not supporting war — like The Quakers for example) you could become a target of the Treasury and have your money turned off. Nixon used the Treasury to attack people he did not like during the Vietnam war. Imagine if a guy like Nixon (TRUMP) had the ability to use money to control his enemies.
In closing, AMERICANS SHOULD RESIST ALL EFFORTS TO MANIPULATE MONEY whether it be Federal Reserve Notes which are debt instruments with no store of value behind them or digital currencies that are highly centralized and open to hacking.
The founders who wrote the constitution understood that money (gold and silver) when it is in the pockets of citizens is POWER. It is power because its real and decentralized. What is real can’t evaporate and citizen power is the foundation of democracy.
Thank you.
Dr. Olejak
Imagine if a guy like Nixon (TRUMP) had the ability to use money to control his enemies.
or Trudeau — oh wait. no imagination needed.