Lecture 1: Money – Its Origin & Its Importance

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Presentation transcript:

Lecture 1: Money – Its Origin & Its Importance ECO 473 – Dr. Dennis Foster

Backstory – The “Austrian” School Böhm-Bawerk (Capital & Interest) Menger (Principles of Economics) Mises (Theory of Money & Credit; Human Action) Hayek (Individualism & Economic Order) (The Road to Serfdom) Rothbard (Man, Economy & State) (The Mystery of Banking)

Arises in a market setting The Origins of Money Arises in a market setting Direct exchange (barter) Indirect exchange Characteristics: Portable, divisible, storable, recognizable, scarce. What distinguishes a “medium of exchange” from money? Why use gold as money?

Money solves problems … Double coincidence of wants Indivisibilities Calculation of profit and loss. With barter how can a business owner tell if they are profitable?

Money and the State The “state” can’t invent money. But, the “state” can take over money. What advantages would a king have in minting coins? How can a king debase money when it is gold coins? Can a king debase money when it is paper redeemable for gold? What if the paper was non-redeemable for gold? Note that monetary units were defined in terms of some commodity: British pound, Japanese yen, U.S. dollar. How is it that cigarettes can be money?

Lecture 1: Money – Its Origin & Its Importance ECO 473 – Dr. Dennis Foster