I have begun listening to Prof. Michael Salemi on the basics of money and banking. In his 2nd lecture of his Great Course, he explains a problem with the exchange of actual goods instead of money. I always thought it would be fun to actually barter my stuff for your stuff. But Salemi says to think about it. I have extra kale from (Lynn's) garden and I would like some tiramisu. Unfortunately, you don't have any tiramisu you want to give away and you don't like kale, even Lynn's Russian red kale. So, no dice - there does not seem to be a possibility of an exchange between us. By the time I find a tiramisu maker with a little to give away who also likes kale, I will be too old to carry out the deal.
That is the genius of money. It is a great go-between. I buy tiramisu with money and the tiramisu maker uses the money to buy a preferred vegetable, or goes to a movie or fills his tank with fuel. Using an indirect carrier of value basically allows us to convert anything into anything else. I see now that I had always pictured the easy part, the part where my lovely fish is exchanged for your lamb chops. Salemi quotes somebody on bartering that bartering requires a double coincidence: you happen to want my fish and I happen to want lamb chops. I can see all sorts of possible difficulties. I might think my fish is worth more than the number of chops you have. You might think my fish is too small for even one chop.
Again, with money, we can adjust the deal and each get some of what we want.
For a long time, gold served as money or stood behind money. No medieval alchemist ever found a way to make gold and its rarity seemed to make it a good sort of money. Like paper money, like silver coins, gold, in and of itself, isn't basically that helpful for human life. But if we can guess that other people will accept gold so they in turn can trade it for what they want, we can go with that guess and do exchanges that accumulate gold. Or something else of value. If money is greenbacks, paper dollars no longer backed by gold, it is an example of "fiat" money, money that Salemi says is valuable because "the government says it is valuable." However, he emphasizes that money is a social contract and the people must believe that the gold or silver or rubles or dollars will be accepted by others for the system to work.
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