"Money Money Money - its a rick mans world " -ABBA-


The first thing you need to get your head around in relation to economics is the “money” thing and at this stage I think you and I may have different visions in our mind about money.

Money is more than what ABBA meant in their song and it’s more than what is means in the term - “Money in the Bank”. Although in both contexts it’s not wrong it’s just inadequate.

Dictionaries provide us with a whole plethora of options to choose from, all of them not very useful in the final analysis.

So lets start with the general definition ‘A medium that can be exchanged for goods and services”.

The poignant phrase of the statement being ‘can be exchanged’

But I think we could get bogged here for a long time on the money thing so it’s best if you just accept the definition to be “Money can be anything of desire by another”

So as I think everyone knows that way back humans initially bartered money and the system worked reasonably well when there was less than a 1 million us and it was used to exchange consumable goods.

But not as well when we grew to 10,000,000 and started bartering in labour. A bow maker may be able to build up credit for a few hours but a house maker could easily build up credit for a few hundred hours and unlikely to ever be able to cash the full amount in with the bow maker.

So a more transportable unilateral system was called for.

This arrived in the birth of the thing we now call currency.

Currency was a tokens system were units of reasonably compact, easy transportable and fairly well universally desirable products could eminently be exchanged.

The most popular of the early currencies were small chunks of the more precious metals be they gold, silver, lead, or any of their relatives.

The next significant step was the management of these exchange icons (currency) by the management and the authority of the chieftains of large clans (kings and emperors).

Then eventually the precious metals themselves were replaced by promissory notes from the management authorities which were underwritten by their value in precious metals.(usually Gold)

As long as people felt secure to able to exchange back the promissory note for something of real substance, the system worked.

This system was eventually abandoned in the 1930s and ever since then these promissory notes rest entirely upon the credit worthiness of the issuing authority.

This system is actually the reverse of the credit card in which a bank issues money in the form of currency on your behalf to a third party in the expectation of getting their money returned to them upon their demand.

Thankfully though today nation states are slightly more credit worthy than some of the people to whom credit cards are issued but credit cards are whole story within themselves for another section of this site.