ECO LECTURE 31 1 WHAT WE WANT TO DO TODAY IS GO ON TO THE NEXT TOPIC WHICH WE'LL JUST CALL "MONEY AND BANKING." "MONEY AND BANKING" IS ALSO

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1 ECO LECTURE 31 1 WHAT WE WANT TO DO TODAY IS GO ON TO THE NEXT TOPIC WHICH WE'LL JUST CALL "MONEY AND BANKING." "MONEY AND BANKING" IS ALSO THE TITLE OF A COURSE WE TEACH HERE AT SMS. THE IDEA, THOUGH, WITH THIS TOPIC OF MONEY AND BANKING IS THAT THE AMOUNT OF MONEY IN THE ECONOMY -- AND IT'S REALLY NOT JUST THE QUANTITY OF MONEY, BUT THE SUPPLY AND DEMAND FOR MONEY. BUT THE SUPPLY AND DEMAND FOR MONEY IN THE ECONOMY, THAT INFLUENCES ECONOMIC ACTIVITY. AND SINCE THAT INFLUENCES ECONOMIC ACTIVITY, WE WANT TO UNDERSTAND HOW IT DOES THAT. THE SUPPLIER OF MONEY IS THE FEDERAL RESERVE AND THE BANKING SYSTEM, AND WE WANT TO TALK ABOUT THAT MORE. NOT TODAY, BUT NEXT TIME. TODAY WE WANT TO JUST TALK ABOUT SOME OF THE BASICS OF MONEY. WHAT IS MONEY? YOU KNOW, THIS IS A QUESTION THAT IS BOTH VERY SIMPLE AND VERY DIFFICULT. IT'S SIMPLE BECAUSE WE'VE ALL BEEN USING MONEY THROUGHOUT OUR LIVES. I USE A LITTLE BIT LESS THAN I'D LIKE TO, BUT WE'VE ALL BEEN USING MONEY. AND I THINK WE ALL JUST KIND OF FEEL COMFORTABLE WITH IT. LIKE TO HAVE A LITTLE MORE, BUT WE KNOW WHAT IT IS. YOU'VE HAD IT IN YOUR HANDS; YOU'VE SPENT IT BEFORE; AND SO YOU MIGHT SAY, WELL, IT'S JUST ONE OF THE MOST COMMON THINGS IN THE WORLD. AND, IN A SENSE, IT IS. BUT WE DON'T WANT TO JUST SAY, "WELL, YOU KNOW, I KNOW MONEY WHEN I SEE IT." WE WANT TO HAVE A MORE OFFICIAL SORT OF

2 ECO LECTURE 31 2 UNDERSTANDING. AND SO MONEY IS ANYTHING THAT IS GENERALLY ACCEPTED IN PAYMENT FOR GOODS AND SERVICES. THERE'S A COUPLE OF KEY TERMS HERE AND WE WANT TO -- I'LL POINT 'EM OUT TO YOU. ONE IS THIS: THE WORD "ANYTHING." I AM NOT SAYING TO YOU THAT MONEY IS ANYTHING THE GOVERNMENT SAYS IT IS OR MONEY IS ANYTHING THE FEDERAL RESERVE PRINTS UP. I DON'T HAVE ANY OF THOSE DEFINITIONS. IT CAN LOOK LIKE ANYTHING, IT CAN COME FROM ANYWHERE. MONEY CAN BE ANY PARTICULAR OBJECT OR MAYBE NOT EVEN AN OBJECT. YOU KNOW, THIS INTERNET COMMERCE, WE CAN PAY FOR THINGS OVER THE INTERNET AND THERE'S NOTHING TANGIBLE THAT YOU SEND TO SOMEBODY ELSE, BUT YOU STILL CAN PAY THEM. SO THE POINT IS, WE DON'T EVEN HAVE TO HAVE A TANGIBLE OBJECT. MONEY CAN BE ANYTHING, POTENTIALLY, ASSUMING ONLY THAT IT IS GENERALLY ACCEPTED IN PAYMENT FOR GOODS AND SERVICES. AND I'VE UNDERLINED ANOTHER KEY TERM, THIS "GENERALLY ACCEPTED." I DON'T MEAN TO SAY MONEY IS ANYTHING YOU CAN SOMETIMES USE TO BUY SOME THINGS FROM SOME PEOPLE IN CERTAIN SITUATIONS. I MEAN IF IT'S GENERALLY ACCEPTED, THEN WE CALL IT MONEY. AND JUST TO GIVE YOU AN EXAMPLE. I'VE GOT THIS MARKER THAT I WRITE ON THE BOARD WITH. I MIGHT BE ABLE TO TAKE THIS MARKER OVER TO MCDONALD'S FOR LUNCH AND GIVE IT TO THEM, AND THEY GIVE ME A FISH SANDWICH BACK OR SOMETHING LIKE THAT, OR AN ORDER OF FRIES. AND THEN YOU MIGHT SAY, "OH, GOSH. YOU WERE ABLE TO BUY AN ORDER

3 ECO LECTURE 31 3 OF FRIES WITH THIS MARKER. IS THIS MONEY?" AND THE ANSWER IS: NO, THIS IS NOT MONEY BECAUSE IT'S NOT GENERALLY ACCEPTED. I MIGHT FIND SOMEBODY TO TRADE WITH. BUT IF I FIND SOMEBODY TO TRADE THIS MARKER FOR A BAG OF FRIES, WE CALL THAT BARTER. THAT'S WHERE WE HAVE NO MONEY. THAT'S WHERE WE JUST TRADE GOODS FOR GOODS. AND THAT'S WHAT THIS EXAMPLE IS HERE, OF ME TRADING THE MARKER FOR THE FRIES. AND THEY ALWAYS ASK, "DO YOU WANT A TURNOVER TO GO WITH THAT?" AND, YOU KNOW, I NEVER HAVE A SECOND MARKER WITH ME TO GET ONE. ANYWAY, WE JUST CALL THAT BARTER WHEN WE'RE TRADING GOODS FOR GOODS. IF WE HAVE SOMETHING -- IF I COULD JUST GO UP AND DOWN THE STREET AND BUY, LET'S SAY, LUNCH AND GET MY SHOES SHINED AND BUY SOME BOOKS OUT AT THE BOOKSTORE AND DO DIFFERENT THINGS LIKE THIS -- IF I COULD JUST TAKE MY MARKER, GO ACROSS TOWN AND JUST BUY THINGS MOST ANYPLACE I WANT WITH THESE MARKERS, THEN THEY WOULD BE GENERALLY ACCEPTED AND WE WOULD CALL THEM MONEY. BUT WHEN THERE'S JUST A FEW PLACES WHERE I CAN TRADE ONE OF THESE MARKERS FOR MERCHANDISE, WE CALL THAT BARTER. NOT, "OH, THIS IS A MONEY PRODUCT OR A MONEY GOOD." OKAY. MONEY IS -- THIS IS A SLIGHTLY DIFFERENT TERM FOR YOU, BUT MONEY IS GENERALIZED PURCHASING POWER. AND THAT'S ALL WE MEAN BY MONEY. IT'S JUST SOMETHING THAT YOU CAN SPEND. ISN'T THAT A NEAT TERM? A LOT OF THINGS HAVE SERVED AS MONEY THROUGH THE AGES, AND

4 ECO LECTURE 31 4 EVEN TODAY A LOT OF THINGS SERVE AS MONEY AROUND THE WORLD. BUT IN CERTAIN TIMES OR PLACES WE SEE FEATHERS BEING USED AS MONEY, SHELLS, BEADS. IN THE UNITED STATES IN THE EARLY DAYS PEOPLE USED TOBACCO LEAVES AS MONEY. AND THIS WOULDN'T BE EVERYWHERE, BUT LIKE OVER ON THE EAST COAST, THE CAROLINAS AND VIRGINIA AND SO FORTH, MARYLAND, THEY WOULD SOMETIMES USE TOBACCO LEAVES AS MONEY. AND YOU COULD TAKE TOBACCO LEAVES -- NOT EVERYWHERE, BUT A LOT OF PLACES AND BUY THINGS, AND THEN WE WOULD CALL THAT MONEY. CERTAIN AREAS YOU CAN USE FOOD STAMPS. IN THE UNITED STATES NOWADAYS YOU CAN USE FOOD STAMPS AND SORT OF TRADE THOSE WITH PEOPLE, AND IN CERTAIN AREAS USE THEM AS MONEY. BUT THEN IF YOU GET OUTSIDE THAT AREA WHERE MAYBE EITHER A LOT OF FOOD STAMPS AND A LOT OF 'EM BEING TRADED. BUT IF YOU COME TO MY NEIGHBORHOOD OR YOUR NEIGHBORHOOD OR WHATEVER, MAYBE FOOD STAMPS COULDN'T BE USED AS MONEY. SO WE WOULD NOT REALLY CALL THEM MONEY OTHER THAN IN A VERY SMALL AREA. BUT, LIKE I SAY, A LOT OF THINGS HAVE SERVED AS MONEY OVER THE AGES. OUT IN THE PACIFIC ISLANDS, SORT OF WEST AND SOUTH OF HAWAII, THERE'S AN ISLAND CALLED YAP -- AND THIS IS SORT OF SOUTHWEST OF HAWAII AND SOUTHEAST OF AUSTRALIA, BUT THERE'S AN ISLAND HERE. HERE'S HAWAII RIGHT HERE AND OVER HERE IS AUSTRALIA, AND YAP IS SOMEPLACE OUT IN-BETWEEN. THERE'S A LOT OF ISLANDS OUT IN THIS

5 ECO LECTURE 31 5 AREA AND THOSE ISLANDS ARE COLLECTIVELY CALLED MICRONESIA, AND THE AREA IS ABOUT AS BIG AS THE UNITED STATES. ANYWAY, ONE OF THOSE ISLANDS IS CALLED YAP. ANYWAY, ON THAT ISLAND WHAT THEY HAVE IS THESE BIG STONES. THEY'VE GOT A HOLE IN 'EM. LET ME SEE IF MY ARTWORK WILL LET ME DRAW THIS STONE. BIG STONE -- OR WHAT ARE THEY, LIMESTONE. AND THESE ROCKS ARE USED AS MONEY. AND THEY ARE GENERALLY ROUND, NOT REAL SMOOTH LIKE A CAR TIRE OR SOMETHING LIKE THAT, BUT PRETTY ROUND. AND THEY'VE GOT A HOLE IN THE MIDDLE BECAUSE WHEN IT'S TIME TO MOVE 'EM, THEY'LL PUT A STICK THROUGH THERE AND ONE GUY GETS ON ONE END OF THE STICK AND ANOTHER GUY ON THE OTHER END OF THE STICK, AND THEY HOIST IT UP ON THEIR SHOULDERS AND GO WALKING DOWN THE ROAD. AND SOME TIMES THEY'VE GOTTA HAVE A LOT OF GUYS ON EACH END OF THE STICK 'CAUSE, YOU KNOW, ROCKS ARE KIND OF HEAVY. ANYWAY, THAT'S MONEY FOR THEM. THERE'S ANOTHER ISLAND -- LET ME SEE. HERE'S AUSTRALIA. UP HERE A LITTLE BIT NORTH AND EAST, WHICH IS NEW GUINEA, G-U-I-N-E-A. I DON'T KNOW HOW TO SPELL. G-U-N-I-E-A? NEW GUINEA IS UP HERE. AND, YOU KNOW, THE PEOPLE WHO LIVED UP IN THE INTERIOR OF NEW GUINEA, RIGHT HERE IN THE CENTER -- FIRST OF ALL, LET ME MENTION TO YOU THAT RINGING THE ISLAND OR THIS -- WELL, IT IS AN ISLAND. BUT RINGING THE ISLAND ARE THESE MOUNTAINS, VERY JAGGED MOUNTAINS, AND VERY DIFFICULT TO TRAVEL IN THAT TERRITORY. BECAUSE YOU CLIMB

6 ECO LECTURE 31 6 UP A REAL STEEP MOUNTAIN, THEN YOU GO DOWN AND THERE'S ANOTHER ONE, AND THEN ANOTHER AND ANOTHER. AND SO BASICALLY, THE PEOPLE THAT LIVE UP IN THE INTERIOR OF NEW GUINEA, THEY JUST ALMOST NEVER LEAVE. AND IN THE 1930S THE PEOPLE IN THE CENTER OF NEW GUINEA, IN THE INTERIOR, THEY THOUGHT THEY WERE THE ONLY PEOPLE ON EARTH. THEY JUST DID NOT REALIZE THERE WAS ANYBODY ANYWHERE ELSE. BECAUSE WHEN SHIPS AND SO FORTH WOULD GO BY, THEY NEVER SAW 'EM. THEY DIDN'T, YOU KNOW, CLIMB THESE MOUNTAINS. WELL, I MEAN, WHAT'S THE PURPOSE? AND SO THEY STAYED RIGHT THERE AND THOUGHT THEY WERE THE ONLY PEOPLE ON EARTH. AND THEN IN THE 1930S THEY STARTED SEEING SOME AIRPLANES FLY OVER, JAPANESE AIRPLANES, AND THEY SAID, "WHAT ARE THESE THINGS, THESE ANIMALS, YOU KNOW, GOING OVERHEAD?" AND THEY JUST DID NOT KNOW WHAT IT WAS. AND THEN SEVERAL YEARS LATER THERE WAS -- LET ME JUST KIND OF DRAW AN AIRPLANE HERE. OH, THAT'S A VERY GOOD AIRPLANE. MY TEACHING IS MARGINALLY BETTER THAN MY ART. BUT ANYWAY, THESE AIRPLANES FROM AUSTRALIA FLEW OVER. THE GUYS FROM AUSTRALIA WERE -- THEY WERE LOOKING FOR GOLD. AND SO THEN THEY WERE FLYING AROUND OVER NEW GUINEA AND LOOKING DOWN, YOU KNOW, TRYING TO FIND A PLACE TO LAND. AND ANYWAY, THE POINT IS IS THAT WHEN THAT AIRPLANE LANDED IN NEW GUINEA, THE PEOPLE -- AS A MATTER OF FACT, THE PEOPLE WHO LIVED THERE DIDN'T EVEN THINK THAT

7 ECO LECTURE 31 7 WAS OTHER PEOPLE. THEY THOUGHT IT WAS SPIRITS COMING DOWN FROM THE SKY OUT OF THIS AIRPLANE. AND THEY WOULD SORT OF BOW DOWN, YOU KNOW, AND WORSHIP 'EM A LITTLE BIT. AND WHAT THEY WERE DOING -- AND IT CAME OUT LATER BECAUSE AT THE FIRST THEY COULDN'T UNDERSTAND EACH OTHER'S LANGUAGE. BUT LATER ON IT CAME OUT THAT THESE PEOPLE WOULD BE BOWING DOWN AND SO FORTH, AND THE REASON FOR THAT IS THESE GUYS FROM AUSTRALIA THEY BELIEVED TO BE GHOSTS. AND THEY THOUGHT THESE WERE RELATIVES AND, LIKE, THEY WERE SAYING THINGS LIKE, "OH, THERE'S UNCLE GEORGE," YOU KNOW OR -- AND I'M SURE HE HAD A DIFFERENT NAME THAN GEORGE. BUT THE IDEA IS, THEY THOUGHT THESE WERE THEIR ANCESTORS WHO WERE COMING BACK TO SEE 'EM. AND THESE PEOPLE USED SHELLS AS MONEY, THESE PEOPLE IN THE INTERIOR OF NEW GUINEA. THEY USED SHELLS. THERE WERE VERY FEW OF THOSE SHELLS THAT WORKED THEIR WAY IN THERE. THERE WAS A RIVER THAT RAN THROUGH THE CENTER OF THE ISLAND. AND SO THEY HAD A FEW SHELLS AND THEY USED THAT AS MONEY, AND THAT WAS THE ONLY THING THEY HAD THAT WAS VALUABLE AS MONEY AND THEY THOUGHT THAT WAS VERY VALUABLE. AND SO WHAT HAPPENED WAS THESE GUYS FROM AUSTRALIA WHO WERE LOOKING FOR GOLD, ONCE THEY FOUND OUT THAT THE GUYS FROM NEW GUINEA USED SHELLS AS MONEY, THEN THE GUYS IN AUSTRALIA FLEW THEIR PLANE BACK HERE AND THEY LOADED UP WITH LIKE A PLANE FULL OF SHELLS. AND THEN THEY CAME BACK TO NEW GUINEA AND JUST BOUGHT

8 ECO LECTURE 31 8 EVERYTHING, YOU KNOW. IT'S LIKE, "OH, MAN. HOW MUCH FOR THAT HOUSE OVER THERE? HOW MUCH FOR THAT COW?" YOU KNOW. SO ANYWAY -- OR I DON'T EVEN KNOW IF THEY HAD COWS. BUT THE POINT IS IS THAT THEY HAD THEIR OWN SPECIAL KIND OF MONEY IN NEW GUINEA, AND THEN IN COME THE AUSTRALIANS. AND WHAT WE WILL LEARN LATER ON, THE REASONING FOR ALL THIS, BUT RIGHT NOW I'LL JUST SORT OF TELL YOU THE STORY. WHEN THE SHELLS ARE BROUGHT BACK TO NEW GUINEA AND THE AUSTRALIANS START SPENDING THESE SHELLS TO BUY THINGS, THEN THERE'S A HUGE INCREASE IN THE MONEY SUPPLY. AND WHEN THERE WAS A HUGE INCREASE IN THE MONEY SUPPLY, THAT INCREASED WHAT WE WOULD CALL AGGREGATE DEMAND AND IT CAUSED THE PRICE LEVEL TO START GOING UP. THERE WAS MORE SPENDING AND SO PRICES ROSE, AND THERE WAS INFLATION. AND SO, YOU KNOW, SOMETHING THAT YOU COULD BUY FOR ONE SHELL AT FIRST, NOW ALL OF A SUDDEN IT'S TWO SHELLS, THREE SHELLS. AND SO THIS IS REALLY -- THIS NEW GUINEA STORY IS A LITTLE BIT OF, YOU KNOW, TELLING THAT ANYTHING CAN SERVE AS MONEY, INCLUDING THESE SHELLS. BUT PARTLY THE STORY IS TO GIVE YOU A FEELING OF WHERE WE'RE HEADED, AND WE'RE HEADED WHERE WE WANT TO UNDERSTAND HOW AN INCREASE IN THE MONEY SUPPLY WOULD INFLUENCE -- I'M STILL TRYING TO SPELL THAT WORD. HOW AN INCREASE IN THE MONEY SUPPLY WOULD AFFECT THE ECONOMY. OKAY. ANYWAY -- YEAH, 1930S. INTERESTING STORY. AND WHAT WAS THE

9 ECO LECTURE 31 9 TITLE OF THAT BOOK? I READ A BOOK ABOUT THIS CALLED FIRST CONTACT, IF YOU'RE INTERESTED, IF YOU'RE INTERESTED IN THAT STORY. FOR SURE YOU DON'T HAVE TO READ THAT, YOU KNOW, TO GET THROUGH THIS CLASS. ANYWAY, WHAT WE WANT TO DO IS GO ON AND TALK A LITTLE BIT ABOUT MONEY, AND WE'LL GET BACK TO THIS STUFF ABOUT THE MONEY SUPPLY AND AGGREGATE DEMAND AND INFLATION, AND SO FORTH, LATER ON. WHAT WE WANT TO DO IS JUST KIND OF TALK ABOUT WHY PEOPLE USE MONEY. WE KNOW THAT WE HAVE MONEY 'CAUSE WE'VE ALL USED IT FROM TIME TO TIME. NOT AS OFTEN AS I LIKE. BUT WE'VE ALL USED MONEY, WE KNOW WE HAVE IT. BUT THE QUESTION IS NOT JUST DO WE HAVE IT, BUT WHY DO WE HAVE IT? WHY DO WE USE MONEY? THIS IS ONE OF THOSE THINGS WHERE YOU JUST SAY, "WELL, I DON'T NEED TO ANSWER THAT BECAUSE WE'VE ALL USED MONEY AND IT'S JUST NECESSARY." AND THE ANSWER IS, WELL, IT'S NOT NECESSARY. THERE IS A TIME, IF WE GO BACK, WHEN PEOPLE DID NOT USE MONEY. SO IT'S NOT NECESSARY. IT'S CONVENIENT AND WE CERTAINLY DO USE IT AND GET BENEFITS FROM IT, BUT IT HASN'T ALWAYS BEEN THAT THERE WAS MONEY. THE REASON WE USE MONEY IS MONEY PERFORMS CERTAIN FUNCTIONS. AND ANOTHER WAY OF SAYING THAT IS MONEY PROVIDES CERTAIN SERVICES. IT PERFORMS THESE FUNCTIONS BUT THOSE FUNCTIONS ARE IT PROVIDES SERVICES TO US. AND SO IF WE SAY WHY DO WE USE MONEY, THE ANSWER IS, "WELL, I LIKE THE SERVICES MONEY PROVIDES. JUST LIKE I USE A PILLOW AT NIGHT BECAUSE I LIKE THE

10 ECO LECTURE SERVICES THAT THE PILLOW PROVIDES. AND I USE A CAR BECAUSE I LIKE THE SERVICES A CAR PROVIDES. I USE MONEY BECAUSE I LIKE THE SERVICES OR THE FUNCTIONS THAT MONEY PROVIDES." OKAY. FIRST FUNCTION PERFORMED BY MONEY? MONEY IS A UNIT OF ACCOUNT. MONEY IS A UNIT OF ACCOUNT. WHAT DO WE MEAN BY "UNIT OF ACCOUNT?" IT'S -- LET ME JUST PUT UP LITTLE QUOTES HERE. A MEASURING ROD OF VALUE. THAT IS TO SAY, MONEY SERVES IN THIS ROLE. WE USE MONEY TO TALK ABOUT THE VALUE OF THINGS. AND I DON'T MEAN TO SAY THERE'S AN EMOTIONAL VALUE, BUT JUST THEIR MARKET VALUE. IF I SAY, "OH, MY WATCH COST TWENTY DOLLARS. MY CAR COST A THOUSAND DOLLARS," THAT SORT OF THING, WE'RE USING THE DOLLAR TO SAY, "OH, ONE WATCH EQUALS TWENTY DOLLARS." THE DOLLAR IS BEING USED TO MEASURE THE VALUE OF THE WATCH. ONE CAR, ONE THOUSAND DOLLARS. AGAIN, THE DOLLAR IS BEING USED TO MEASURE THE VALUE. AND NOW WE USE, YOU KNOW, LIKE A YARDSTICK OR A RULER TO MEASURE A PERSON'S HEIGHT. WE USE SCALES, POUNDS, TO MEASURE YOUR WEIGHT. AND ALL WE'RE SAYING IS, JUST AS WE USE FEET AND POUNDS TO MEASURE HEIGHT AND WEIGHT, WE USE DOLLARS TO MEASURE MARKET VALUES. IN OTHER COUNTRIES, OF COURSE, THEY HAVE THEIR OWN CURRENCIES AND THEY HAVE THEIR OWN MEASURING ROD OF VALUE. BUT IN THE UNITED STATES WE USE THE DOLLAR, AND MONEY IS, OF COURSE, THE DOLLAR IN THE UNITED STATES. SO ANYWAY, THAT'S WHAT WE'RE TALKING ABOUT. ONE OF THE THINGS THAT MONEY DOES IS IT

11 ECO LECTURE ALLOWS US TO HAVE SOME STANDARDIZED WAY OF STATING THE VALUES OF THINGS. SUPPOSE THERE'S NO MONEY. AND SOMEBODY SAYS, "GOSH," YOU KNOW, "WHAT'RE YOU WORTH? HOW MUCH DO YOU HAVE? WHAT DO YOU OWN? WHAT'S YOUR WEALTH?" THEN YOU'D JUST HAVE TO GIVE A LIST. "WELL, YOU KNOW, I'VE GOT TWO COWS; I'VE GOT THREE SHEEP; I'VE GOT FOURTEEN ACRES OF LAND; I'VE GOT A HOUSE," AND WE'D JUST HAVE AN INVENTORY. THERE'D BE NO SINGLE WAY TO JUST SAY, "OH, GOSH. MY NET WORTH IS TWENTY-THREE THOUSAND DOLLARS." AND ALL OF A SUDDEN WE'RE USING THE DOLLAR TO STATE THE VALUE OF THESE THINGS. OKAY. SO ANYWAY, THAT'S THE FIRST FUNCTION PERFORMED BY MONEY. BACK IN A BARTER ECONOMY THERE'S NO MONEY AND SO THERE'S NO MEASURING OUT OF VALUE. NO UNIT OF ACCOUNT. LET'S SEE WHAT THE WORLD WOULD BE LIKE IF WE WERE IN THAT BARTER SITUATION. LET'S SAY THAT WE HAD -- LET'S SAY THREE DIFFERENT GOODS: A. B, C. IF WE HAD THREE DIFFERENT GOODS AND WE WANTED TO STATE THE VALUE OF GOODS, THEN WE'D DO SOMETHING LIKE THIS. WE'D SAY, "WELL, THE VALUE OF A CAN BE EXPRESSED IN TERMS OF B." OR "THE VALUE OF A COULD BE EXPRESSED IN TERMS OF GOOD C." YOU COULD MEASURE THE VALUE OF GOOD IN TERMS OF OTHER GOODS. HOW ABOUT THIS: THE VALUE OF GOOD B COULD BE MEASURED IN TERMS OF GOOD C. THIS IS ALL THE POSSIBLE COMBINATIONS. BECAUSE THE RELATIONSHIP BETWEEN A AND B WE'VE CAPTURED, A AND C, B AND C, AND THEN EVERYTHING ELSE IS LIKE THE

12 ECO LECTURE VALUE OF B IN TERMS OF A -- WELL, WE'VE ALREADY GOT THAT. THE VALUE OF B IN TERMS OF C? GOT IT. SO ANYWAY, IF YOU HAVE THREE GOODS, THEN THERE'D BE THREE -- WHAT WOULD WE CALL THESE -- RELATIVE PRICES. THAT IS TO SAY, THE PRICE OF ONE GOOD RELATIVE TO ANOTHER. LET'S EXPAND THIS A LITTLE BIT AND MAKE IT FOUR GOODS, SEE WHAT HAPPENS. A, B, C, D. THAT SEEMS SIMPLE, DOESN'T IT? IF WE HAVE FOUR GOODS, THEN HOW MANY RELATIVE PRICES? WE HAVE THE PRICE OF A IN TERMS OF B, THE PRICE OF A IN TERMS OF C, PRICE OF A IN TERMS OF D, SO NOW THAT'S THE VALUE OF A. B IN TERMS OF C, B IN TERMS OF D, C IN TERMS OF D, AND I THINK THAT'S GOT 'EM ALL. NOW, WE COULD DUPLICATE THESE. I COULD SAY, OH, THE VALUE OF D IN TERMS OF A, BUT I ALREADY HAVE A IN TERMS OF D. D IN TERMS OF B, BUT I ALREADY HAVE B IN TERMS OF D. SO WE DON'T NEED TO DO THAT OTHER, YOU KNOW, ONE, TWO, THREE, FOUR, FIVE, SIX PRICES. FOUR GOODS, SIX PRICES. OH, ISN'T THIS INTERESTING. WHEN WE HAD THREE GOODS, WE HAD THREE PRICES. NUMBER OF GOODS EQUAL NUMBER OF PRICES. BUT WHEN WE HAD FOUR GOODS, WE HAD SIX PRICES. SUPPOSE WE HAD FIVE GOODS. HOW MANY PRICES ARE THERE? A THROUGH E, HOW MANY PRICES? FORTUNATELY, WE DON'T HAVE TO DO THIS THE LONG WAY. HERE'S A FORMULA: THE NUMBER OF RELATIVE PRICES EQUALS N TIMES N MINUS ONE OVER TWO, WHERE N IS THE NUMBER OF GOODS. SO, FOR EXAMPLE, IF I ASK YOU A QUESTION, WHAT IF WE HAVE FIVE DIFFERENT GOODS? HOW MANY RELATIVE PRICES? FIVE TIMES FOUR OVER

13 ECO LECTURE TWO EQUALS TWENTY OVER TWO -- IS THAT RIGHT? -- EQUALS TEN. HMM, ISN'T THIS INTERESTING? WHEN WE HAD THREE GOODS, WE HAD THREE PRICES. WE ADD A COUPLE MORE GOODS -- WE'VE GOT FIVE GOODS -- AND ALL OF A SUDDEN WE HAVE TEN PRICES. WE ADDED TWO MORE GOODS AND WE'VE ADDED SEVEN MORE PRICES. LET'S USE THAT FORMULA AND DO KIND OF AN EASY ONE. SUPPOSE WE HAD ONE HUNDRED GOODS. THEN WE WOULD HAVE ONE HUNDRED TIMES NINETY-NINE OVER TWO -- THAT'S THE NUMBER OF PRICES -- EQUALS NINETY-NINE HUNDRED OVER TWO EQUALS -- LET ME SEE IF I CAN DO THIS MATH NOW -- FOUR, NINE -- OH, I CAN DO IT -- FORTY-NINE FIFTY. IF WE HAVE ONE HUNDRED GOODS -- THIRTY TIMES AS MANY GOODS AS BEFORE -- THIRTY-THREE, I SHOULD SAY. WE STARTED OFF WITH THREE GOODS, NOW WE HAVE A HUNDRED. WE HAVE THIRTY-THREE TIMES AS MANY GOODS. BUT THE NUMBER OF PRICES WAS THREE AND NOW IT'S ALMOST FIVE THOUSAND. LET ME DRAW YOU A GRAPH OF THIS. HERE'S THE N, NUMBER OF GOODS, AND HERE'S NUMBER OF PRICES. THIS IS IN A BARTER ECONOMY, DON'T FORGET. THAT'S THE WHOLE IDEA HERE: IF WE DID NOT HAVE MONEY, WHAT WOULD THE WORLD LOOK LIKE? AND THE ANSWER IS: IT WOULD LOOK LIKE THIS. AS THE NUMBER OF GOODS GROWS, THE NUMBER OF PRICES GROWS MUCH MORE RAPIDLY EXPONENTIALLY. AND YOU CAN SEE THAT, BY THE WAY, IF YOU EXPAND THIS FORMULA. THE NUMBER OF RELATIVE PRICES EQUALS N SQUARED MINUS N OVER TWO. AND THAT N

14 ECO LECTURE SQUARED, THAT'S WHAT'S GIVING THAT CURVE THAT STEEP, UPWARD SLOPE, SORT OF RISING AT AN INCREASING RATE. IT'S BECAUSE OF THAT SQUARE TERM. NOW, SUPPOSE YOU JUST GO TO, YOU KNOW, THE GROCERY STORE DOWN THE STREET, DILLON'S. HOW MANY GOODS DO THEY HAVE IN THAT STORE? DIFFERENT GOODS. I DON'T MEAN TO SAY ONE CAN OF -- OR ALL THE CANS OF BEANS THEY HAVE. IF THEY'RE IDENTICAL, LET'S DON'T COUNT 'EM. BUT UNIQUE GOODS. HOW MANY GOODS DO YOU THINK THEY HAVE? A THOUSAND? TEN THOUSAND? FIFTY THOUSAND? THOUSANDS. AND, BY THE WAY, ONCE THESE NUMBERS START GETTING BIG, YOU CAN JUST KIND OF FORGET ABOUT THIS N MINUS ONE. YOU CAN'T FORGET IT LIKE ON TEST DAY, BUT I'M JUST -- LET'S DO THIS. HERE'S THE NUMBER OF PRICES. IF WE HAD, LET'S SAY, ONE THOUSAND GOODS, WE WOULD BASICALLY HAVE IN THE NUMERATOR ONE MILLION DIVIDED BY TWO EQUALS ONE-HALF MILLION. AND WHAT I'M TELLING YOU HERE IS THIS IS NOT STRICTLY SPEAKING, NOT TRUE. IT'S NOT A THOUSAND TIMES A THOUSAND. IT'S A THOUSAND TIMES NINE HUNDRED AND NINETY-NINE. THAT'S ALMOST A MILLION. AND SO IN SORT OF ROUND TERMS, IF YOU HAD ONE THOUSAND GOODS -- AND, BOY, EVERY GROCERY STORE'S GOT MORE THAN THAT -- YOU'D HAVE OVER A HALF MILLION PRICES. SO HERE'S WHAT WOULD HAPPEN IN A BARTER ECONOMY. YOU GO TO THE GROCERY STORE, YOU GET YOUR CARD OUT, YOU'RE WALKING THROUGH THE STORE, YOU'RE THROWING -- YOU KNOW, YOU'VE GOT YOUR WHEATIES, YOU'VE GOT YOUR

15 ECO LECTURE CHEETOS -- MAN, I LOVE THOSE CHEETOS. GET TWO BAGS OF THOSE. AND YOU GET A LITTLE BIT OF SODA, YOU GET SOME BEANS, YOU GET SOME CRACKERS, YOU GET SOME -- WHATEVER YOU GET -- POTATO CHIPS. I EAT ALL THE HEALTHY FOODS -- YOU KNOW, ONE FROM EACH GROUP. POTATO CHIP GROUP, YOUR CEREAL GROUP. ANYWAY, YOU GO THROUGH THE STORE, YOU GO UP TO THE CHECKOUT COUNTER, YOU THROW IT ALL UP ON THE -- WHATEVER THEY CALL THAT MOVING BELT THERE, THEY RING IT ALL UP, AND THEY TELL YOU, "OKAY, YOU OWE US SIX THOUSAND SHOESTRINGS." 'CAUSE THAT'S HOW YOU'VE GOTTA PAY. YOU'VE GOTTA PAY WITH GOODS. THERE'S NO MONEY IN A BARTER ECONOMY. AND YOU SAY, "GOSH, I DON'T HAVE ANY SHOESTRINGS OTHER THAN THE ONES I'M WEARING, BUT I SURE DON'T HAVE SIX THOUSAND SO I CAN'T PAY YOU THAT WAY. WHAT ELSE COULD I PAY YOU?" AND THEY SAY, "MMM, TWENTY-SEVEN POUNDS OF QUAKER OATS." AND YOU SAY, "WELL, I LEFT THE QUAKER OATS AT HOME. IS THERE ANYTHING ELSE?" "SURE. THREE HUNDRED ROLLS OF TOILET PAPER." "I DON'T HAVE ANY TOILET PAPER WITH ME. WHAT ELSE?" "WELL, THE SHIRT YOU'RE WEARING, THE SLACKS YOU'RE WEARING, THE SHOES YOU'RE WEARING, AND THAT WATCH." "WHAT ELSE?" I MEAN, EVERY TIME YOU WANT TO BUY SOMETHING, YOU'D HAVE TO COME UP WITH A PRICE THAT'S STATED IN TERMS OF OTHER MERCHANDISE. NOW, HERE'S THE PROBLEM WITH THAT WORLD. HOW MUCH OF THIS CAN WE KEEP IN OUR HEAD? ONCE THEY START TELLING US WHAT YOU OWE

16 ECO LECTURE IN SHOESTRINGS AND TOILET PAPER AND WATCHES AND QUAKER OATS, AND ALL THESE OTHER THINGS, THEN IT'S PRETTY EASY -- THIS IS A LITTLE BIT LIKE TAKING A TRIP TO A FOREIGN COUNTRY WHERE THEY START QUOTING PRICES TO YOU IN THEIR CURRENCY, NOT YOUR OWN. AND THAT'S REALLY WHAT WE'RE TALKING ABOUT HERE IS SOME CURRENCY THAT YOU'VE GOTTA PAY WITH, NOT YOUR OWN. AND WHEN THEY START TELLING YOU THOSE PRICES IN TERMS OF, YOU KNOW, YEN OR POUNDS OR MARKS OR FRANCS OR WHATEVER IT IS, THEN WE START GETTING CONFUSED. AND SO IT'D BE THE SAME WAY. YOU'D GO TO THE STORE AND HERE'S WHAT THEY WOULD BE SAYING, THE MANAGERS OF THE STORE. THEY'D BE SAYING, "OH, LOOK AT THIS. THIS GUY, I DON'T THINK HE KNOWS VERY MUCH ABOUT THE SHOESTRING BUSINESS SO LET'S QUOTE THE PRICES TO HIM IN SHOESTRINGS." AND THEN WE'D BE CONFUSED AND IF WE PAY, WE'VE OVERPAID. OR THEY MIGHT TELL US THE PRICE IN QUAKER OATS OR IN TERMS OF GASOLINE OR WHATEVER. BUT THE POINT IS, SINCE WE DON'T KNOW ALL THESE VALUES AND KEEP 'EM SORT OF JUMBLED IN OUR HEAD, THEN IT WILL BE EASY FOR US TO BE CONFUSED ABOUT, "AM I GETTING A GOOD DEAL OR A BAD DEAL?" WHEN EVERYTHING'S STATED IN TERMS OF DOLLARS, WE'RE KIND OF FAMILIAR WITH THOSE DOLLARS. IF LIKE, WHAT, HERE'S A DOZEN EGGS AND THEY'RE SEVENTY-FIVE DOLLARS. WE WOULD KNOW IMMEDIATELY THAT'S KIND OF HIGH. BUT IF THEY START TELLING YOU THE PRICE OF A DOZEN EGGS IN TERMS OF SHOESTRINGS AND QUAKER OATS AND ALL THIS OTHER

17 ECO LECTURE MERCHANDISE YOU'RE NOT FAMILIAR WITH, THEN YOU GET CONFUSED. AND SO WHAT WOULD HAPPEN IN THIS WORLD OF BARTER IS THAT WE WOULD HAVE SO MUCH TO JUGGLE, SO MUCH TO KEEP IN MIND -- AND REALLY IT'S MORE IN TERMS OF MILLIONS OF PRICES. IF YOU MAKE THIS NUMBER TEN THOUSAND DIFFERENT GOODS, THEN YOU'D HAVE ON THE ORDER OF FIFTY MILLION PRICES TO KEEP 'EM MARKED. OKAY. AND THE WORLD IS A LOT MORE COMPLEX THAN TEN THOUSAND GOODS. BUT THE POINT IS, WE WOULD HAVE MILLIONS AND MILLIONS OF PRICES TO KEEP IN MIND. IT WOULD OVERWHELM US AND SO WE WOULD JUST GET BAD DEALS ALL THE TIME. AND SINCE WE'RE GETTING BAD DEALS ALL THE TIME, AFTER AWHILE THAT WOULD DAWN ON US AND WE'D GO, "BOY, EVERY TIME I GOT TO THE STORE I GET A BAD DEAL -- OR AT LEAST I FEEL LIKE I DO." AND AFTER AWHILE WE'D JUST SAY, "IF I CAN HELP IT, I'D RATHER NOT GO TO THE STORE. I ALWAYS FEEL LIKE SOMEBODY'S TAKING ADVANTAGE OF ME." OKAY. SO THE POINT IS IS THAT THIS SITUATION, WHERE WE HAVE NO MEASURING ROD OR NO UNIT OF ACCOUNT, THEN WE HAVE HEAVY INFORMATION REQUIREMENTS. AND WE, WE ECONOMISTS, WE USE A TERM "HIGH TRANSACTIONS COST." THAT IS TO SAY, THERE'S A HUGE AMOUNT OF INFORMATION YOU HAVE TO JUGGLE AROUND IN YOUR HEAD TO KEEP IT STRAIGHT. WHAT'S A GOOD PRICE ON THIS? WHAT'S A BAD PRICE ON THIS? AND SO THERE ARE HIGH TRANSACTIONS COSTS, HIGH INFORMATION COSTS. AND THE RESULT OF THIS IS THAT PEOPLE WOULD AVOID MARKET

18 ECO LECTURE TRANSACTIONS WHENEVER POSSIBLE. I DON'T MEAN TO SAY NOBODY WOULD EVER BUY ANYTHING, BUT I DO MEAN TO SAY TO YOU THAT BUYING THINGS WOULD BECOME LESS COMMON IF YOU FELT LIKE SOMEBODY WAS TAKING ADVANTAGE OF YOU EACH TIME. SO IT'D JUST BE A LOT LESS COMMON WHERE WE'D GO TO THE STORE AND BUY THINGS. WE'D BE MORE LIKELY TO BUY LIKE A LOT OF SOMETHING, BUY A LOT OF EGGS, AND THAT WAY, YOU KNOW, ONCE YOU FIGURE OUT A GOOD VALUE FOR EGGS, YOU CAN JUST BUY THE EGGS AND YOU KNOW YOU'RE GETTING A GOOD PRICE ON THOSE. DON'T BE STRAYING TOO FAR AWAY FROM THERE. DON'T GO STARTING TO BUY BACON AND TOAST AND ALL THIS OTHER STUFF 'CAUSE YOU DON'T KNOW THE VALUE OF THAT. SOMEBODY WILL TAKE ADVANTAGE OF YOU. SO BASICALLY, THIS WOULD INHIBIT MARKET ACTIVITY. IT WOULD DISCOURAGE US. ON THE OTHER HAND, THE WORLD USED TO BE THIS WAY AND WHAT HAPPENED WAS PEOPLE WERE INHIBITED AND THEY DID FIND IT INCONVENIENT TO TRADE. AND SO WHAT HAPPENED 'WAY BACK IN ABOUT, OH, 2500 B.C. -- AND THIS IS MORE OR LESS THE EXACT DATE. NOBODY WAS WRITING IT DOWN AND SAYING, "TODAY'S THE DAY WE INVENTED THIS." BUT SOMEPLACE 'WAY BACK IN TIME, IN AN AREA CALLED SUMER, WHICH REALLY WOULD BE IRAQ TODAY, BETWEEN THE TIGRESS AND EUPHRATES RIVERS OVER IN THE MIDDLE EAST, PEOPLE STARTED USING SILVER AS THEIR UNIT OF ACCOUNT. SO YOU'D BE ABLE TO GO TO A MERCHANT AND THAT MERCHANT WOULD HAVE THE MERCHANDISE SORT OF PRICED IN TERMS OF

19 ECO LECTURE SILVER. AND THERE ARE ACCOUNTS THESE PEOPLE AT SUMER WERE THE FIRST ONES IN HISTORY TO LEARN HOW TO WRITE, AND WHAT THEY DID IS THEY WROTE ON -- THEY CALL 'EM TABLETS, BUT ON CLAY. AND THEY WOULD SORT OF, YOU KNOW, WRITE ON THE CLAY. SO THEY WERE KEEPING TRACK, THEN, IN THEIR ACCOUNTS OR IN THEIR EARLY WRITING. THEY WERE KEEPING ACCOUNT OF PRICES EXPRESSED IN TERMS OF SILVER. THEY WERE DOING WHAT WE WOULD CALL ACCOUNTING TODAY. WHICH WOULD BE -- THEY WOULD HAVE A SCRIBE WHO KNEW HOW TO WRITE THIS FORM OF WRITING. BY THE WAY, THE FORM OF WRITING IS CALLED CUNEIFORM. I WON'T PUT THAT ON THE EXAM BECAUSE THIS IS NOT A CLASS IN CUNEIFORM. ANYWAY, THE FORM OF WRITING WAS CALLED CUNEIFORM AND WHAT THEY WOULD DO IS WRITE DOWN THE VALUE OF THINGS IN TERMS OF SILVER. SO THE SCRIBES DURING THIS PERIOD, THEY WERE SORT OF ACCOUNTANTS. OKAY. SO ANYWAY, THAT'S A LITTLE BIT OF THAT STORY. THE PEOPLE FOUND IT INCONVENIENT TO HAVE NO UNIT OF ACCOUNT AND SO THEY STARTED STATING VALUES IN TERMS OF SILVER. NOW, LET ME TELL YOU SOMETHING ELSE, THOUGH. THEY DIDN'T NECESSARILY PAY IN SILVER. LIKE THE MERCHANT MIGHT SAY SOMETHING TO YOU LIKE, "OKAY, THIS IS TEN GRAINS OF SILVER. THAT'S TWENTY GRAINS OF SILVER. FIVE GRAINS OF SILVER." THEY'D HAVE VALUES IN TERMS OF SILVER, BUT THEN YOU COULD ALWAYS PAY IN THE FORM OF SOMETHING ELSE. OKAY.

20 ECO LECTURE FOR EXAMPLE, THEY MAY SAY SOMETHING LIKE THIS: "ONE GRAIN OF SILVER EQUALS ONE THOUSAND GRAINS OF, WHAT, BARLEY." THEY MIGHT HAVE A RULE -- I MEAN, A PRICE ARRANGED LIKE THAT. AND THEN YOU MIGHT COME IN AND SAY SOMETHING LIKE THIS: "OH, I WANT TO BUY THAT COW," AND THEY MIGHT SAY, "OH, THAT COW IS TEN GRAINS OF SILVER." AND SO WE'RE USING THE GRAIN OF SILVER FOR OUR UNIT OF ACCOUNT, BUT YOU DON'T ACTUALLY PAY IN SILVER. YOU MIGHT SAY SOMETHING LIKE, "OH, OKAY. TEN GRAINS OF SILVER. I'M PAYING IN BARLEY SO I'LL GIVE YOU - - ONE GRAIN OF SILVER IS WORTH A THOUSAND GRAINS -- I'LL GIVE YOU TEN THOUSAND GRAINS OF BARLEY FOR THAT COW." AND SO YOU WOULD PAY IN MAYBE BARLEY, BUT THE UNIT OF ACCOUNT IS SOMETHING ELSE. IT'S SILVER. OKAY. QUESTIONS ABOUT THIS? THE SECOND FUNCTION PERFORMED BY MONEY: MONEY IS A MEDIUM OF EXCHANGE. MONEY IS A MEDIUM OF EXCHANGE. WHAT DO I MEAN BY A MEDIUM OF EXCHANGE? MONEY IS THE THING, THE PHYSICAL OBJECT, THAT YOU HAND OVER WHEN YOU WANT TO BUY SOMETHING. IT'S THE THING USED TO CARRY OUT EXCHANGE. HAND OVER FOR MERCHANDISE. THAT IS TO SAY, YOU HAND OVER THE MEDIUM OF EXCHANGE. WHAT'S THE MEDIUM OF EXCHANGE FOR US? AHH, IT'S THE DOLLAR. LET'S TALK ABOUT A BARTER ECONOMY FOR A SECOND. WHAT HAPPENED IN BARTER ECONOMIES? DIDN'T HAVE ANY DOLLARS. OH, BY THE WAY, I WANT TO GO BACK AND SAY ONE FINAL THING ABOUT THE UNIT OF ACCOUNT. I TOLD YOU ABOUT THIS FORMULA, N TIMES N MINUS ONE OVER

21 ECO LECTURE TWO. THAT'S THE NUMBER OF PRICES IN A BARTER ECONOMY. HOW MANY PRICES ARE THERE IN A MONEY ECONOMY? AND THE ANSWER IS: N. IF THERE ARE A THOUSAND GOODS, THEN WE HAVE A THOUSAND DOLLAR PRICES. THIS IS TWO DOLLARS, TEN DOLLARS, FIFTY DOLLARS, OR WHATEVER. BUT A THOUSAND GOODS? EACH ONE'S GOT A PRICE. AND SO WE GO FROM HAVING WHAT I SAID: IF YOU WERE IN A SITUATION WITH TEN THOUSAND GOODS, FIFTY MILLION PRICES. BUT IF YOU WERE IN A SITUATION WITH TEN THOUSAND GOODS AND MONEY, THERE'D BE TEN THOUSAND PRICES AND NOT FIFTY MILLION. OKAY. SO ANYWAY, BACK TO OUR BARTER SITUATION FOR THE MEDIUM OF EXCHANGE. LET'S KIND OF -- I'LL DRAW YOU A ROAD HERE AND MAYBE RIGHT HERE IS WHERE I LIVE. THIS IS MY HOUSE. OKAY. AND THERE'S OTHER PEOPLE LIVING UP AND DOWN THE ROAD. I'M PUTTING MYSELF BACK IN THESE EARLY DAYS HERE AND I'LL PLAY A KEY ROLE IN THE DEVELOPMENT OF MONEY, IF YOU KEEP YOUR EYES ON MONEY. I GUESS THAT LITTLE X IS ME. HEY, HOW'RE YOU DOING? AND SO ANYWAY, I COME OUT -- I COME OUT OF THE HOUSE ONE MORNING AND I GET OUT ON THE ROAD AND I SAY, "YOU KNOW, I'M GROWING SOME, LET'S SAY, BARLEY OUT HERE." I DON'T KNOW WHAT BARLEY LOOKS LIKE, BUT THAT'S WHAT THEY GREW IN THE MIDDLE EAST. I WAS TELLING YOU ABOUT SUMER HERE A MINUTE AGO. LET'S SAY I GO OUT THERE AND I'VE GOT SOME BARLEY, GOT IT IN A BAG OR SOMETHING LIKE THAT, AND I SAY, "YOU KNOW WHAT I REALLY WISH I HAD? I WISH I HAD A PAIR OF

22 ECO LECTURE SHOES." AND SO I WALK OVER TO MY NEIGHBOR ACROSS THE STREET AND I SAY, "HOWDY, NEIGHBOR," AND THE NEIGHBOR SAYS, "HEY, HOW'RE YOU DOING TODAY?" AND I SAY, "WELL, HEY. I'VE GOT SOME BARLEY WITH ME AND I WANTED TO TRADE THAT AND GET A PAIR OF SHOES FROM YOU." AND THE NEIGHBOR SAYS, "WELL, LET ME GIVE YOU TWO BAD PIECES OF NEWS. NUMBER ONE, I'VE GOT SOME BARLEY OUT BEHIND MY HOUSE, TOO, SO I'M NOT TOO INTERESTED IN YOUR BARLEY." SO THAT'S NUMBER ONE, NO DEAL. "AND NUMBER TWO, I DON'T HAVE ANY SHOES TO TRADE AWAY, EVEN IF I WANTED YOUR BARLEY." SO I SAY, "OKAY, OKAY," AND I JUST HEAD ON DOWN THE ROAD, YOU KNOW. AND I GO AND SEE ANOTHER NEIGHBOR. AND I SAY, "HEY, LET'S HAVE A TRADE DEAL HERE. I'VE GOT SOME BARLEY AND I WANT SOME SHOES," AND THE NEIGHBOR SAYS, "GOSH, YOU KNOW, MY CROP DIED OFF THIS YEAR AND I NEED THE BARLEY," HE SAYS, "BUT I DON'T HAVE ANY SHOES." I SAY, "OKAY. THANKS A LOT." AND HE SAYS, "WHY DON'T YOU JUST LEAVE THE BARLEY HERE?" AND I SAY, "NO, NO, I'M AFTER SHOES." SO I GO ON DOWN THE ROAD. AND, BY THE WAY, IT'S TOUGH GOING DOWN THIS ROAD WITHOUT ANY SHOES ON. SO IT'S STARTING TO HURT A LITTLE BIT AND I GET ON DOWN THE ROAD A LITTLE WAYS, AND I FIND -- THIS GUY HERE, WHAT HE SAID: WANTS BARLEY, HAS NO SHOES. THAT'S THAT GUY. THIS NEXT GUY, I GET DOWN THERE AND I SAY, "HEY, HOW'RE YOU DOING TODAY? YOU WOULDN'T

23 ECO LECTURE HAPPEN TO HAVE ANY SHOES FOR SALE, WOULD YOU?" AND THE GUY SAYS, "SURE DO. YOU KNOW, I'VE BEEN MAKING SHOES, ME AND MY SONS. WE'VE GOT A LITTLE SHOP OUT BEHIND THE HOUSE HERE AND WE DO HAVE SHOES FOR SALE." AND I SAY, "OH, THAT'S GREAT. YOU'VE GOT SHOES." AND I SAY, "WELL, I'VE GOT A BAG OF BARLEY HERE, SOME OF THE SWEETEST BARLEY YOU HAVE EVER PUT IN YOUR MOUTH," AND THE GUY SAYS, "WELL, YOU KNOW, I DON'T NEED ANY BARLEY." WANTS NO BARLEY. BARLEY'S KIND OF LIKE WHEAT. YOU CAN MAKE BREAD OUT OF IT AND THINGS LIKE THAT. SO I SAY, "OKAY, OKAY," AND SO I WALK ON DOWN THE ROAD. AND I SEE ANOTHER GUY -- THIS GUY RIGHT HERE, HE SAYS, "I'VE GOT SHOES FOR SALE. I WANT NO BARLEY." BUT HE SAYS, "I'LL TELL YOU WHAT I WOULD LIKE TO HAVE. I'D LIKE TO HAVE SOME NAILS. I NEED TO BUILD A FENCE OUT BACK, YOU KNOW." AND HE SAYS, "YOU DON'T HAVE ANY NAILS, DO YOU?" AND I SAY, "NO, I DON'T HAVE ANY NAILS." SO I GO ON DOWN THE ROAD AND, YOU KNOW, I JUST KEEP RUNNING INTO PEOPLE, ONE AFTER ANOTHER, AND IT'S THE SAME OLD STORY. EITHER THEY DON'T WANT BARLEY, WHICH I HAVE, OR THEY DON'T HAVE ANY SHOES, WHICH I WANT. OKAY. AND HERE I KIND OF HAD ALMOST A HALF A TRANSACTION. THEY WANTED MY BARLEY BUT NO SHOES. AND HERE I HAD ANOTHER HALF A TRANSACTION. THEY'VE GOT THE SHOES I WANT BUT NO BARLEY, THEY DON'T WANT MY BARLEY. AND SO I STILL CAN'T CARRY OUT THIS TRANSACTION. AND, BY THE WAY, THE REQUIREMENTS FOR TRADE HERE IS -

24 ECO LECTURE WE CALL THIS A DOUBLE COINCIDENCE OF WANTS. THAT IS TO SAY, WE -- AND THIS IS A REQUIREMENT OF TRADE. AND WHAT WE SAY IS, THE DOUBLE COINCIDENCE OF WANTS MEANS THIS: I HAVE TO WANT WHAT THE OTHER PERSON HAS AND THE OTHER PERSON HAS TO WANT WHAT I HAVE. I HAVE TO MEET SOMEBODY WHOSE NEEDS AND WANTS AND OWNERSHIP OF PROPERTY IS THE EXACT MIRROR IMAGE OF MY OWN. WHATEVER I WANT, THEY HAVE TO HAVE AND WHATEVER I HAVE, THEY HAVE TO WANT. AND IN THEORY IT'S POSSIBLE THAT NO SUCH PERSON EXISTS ON EARTH. SO I JUST KEEP ON WALKING DOWN THE ROAD. I'M TRYING TO FULFILL THIS DOUBLE COINCIDENCE OF WANTS. AND I GET 'WAY, 'WAY, 'WAY DOWN THE ROAD AND THIS GUY SAYS -- AND I SAY TO HIM, "HEY, WHEEW. YOU KNOW, MY FEET ARE ACHING TIRED," AND SO FORTH. "WHAT I'M LOOKING FOR, I WANT TO BUY SOME SHOES." AND THE GUY SAYS, "WELL, YOU'RE IN LUCK. WE HAVE SHOES FOR SALE." HAVE SHOES. AND I SAY, "WELL, I'VE GOT SOME BARLEY," AND THE GUY SAYS, "UHH, NO." BUT HE SAYS, "YOU DON'T HAPPEN TO HAVE ANY NAILS, DO YOU?" AND I SAY, "NO, I DON'T HAVE ANY NAILS." AND SO I GO WALKING ON DOWN THE ROAD AND BOY OH BOY AM I SICK AND TIRED OF THIS. AND THEN SUDDENLY I GET THIS FLASH OF INSPIRATION AND I SAY, "GOSH, DIDN'T I SEE SOMEBODY EARLIER TODAY THAT DID WANT SOME NAILS?" OH, MAYBE I'M DOING THIS WRONG. I'M SORRY. LET'S GO BACK TO THIS GUY. HAS NAILS. THERE WE GO. WANTS BARLEY. I'M SORRY. THIS GUY DOWN AT THE END OF THE ROAD, HE'S GOT SOME NAILS. AND SO

25 ECO LECTURE HE WANTS MY BARLEY, BUT HE HAS NAILS TO TRADE FOR 'EM. I DON'T WANT THE NAILS. BUT THEN I GET THIS FLASH OF INSPIRATION AND I SAY, "YOU KNOW, I'M GONNA GO BACK TO THIS GUY. I'M GONNA TRADE MY BARLEY TO HIM AND I'M GONNA GET NAILS FROM HIM. AND THEN I'M GONNA GO 'WAY BACK DOWN THE ROAD AND HERE'S A GUY WHO WANTED NAILS, AND I'LL GIVE HIM THOSE NAILS AND I'LL GET SHOES." AND SO NOW WHAT WE WERE ABLE TO DO IS I WAS ABLE TO WORK OUT SOME KIND OF A TRADE BY GOING ALL THE WAY DOWN HERE AND TRADING MY BARLEY TO THIS GUY WHO'S GOT NAILS. THEN I COULD COME BACK UP HERE AND I COULD TRADE THE NAILS FOR SHOES, AND I GOT WHAT I WANTED. AND THIS IS REALLY A COMPLEX TRADE, ISN'T IT? COMPLEX TRADE. OR A COMPLEX EXCHANGE. WHERE I HAD TO HAVE TWO TRADES NOW IN ORDER TO GET WHAT I WANTED. I HAD TO TRADE AWAY MY BARLEY TO SOMEBODY WHO HAD NAILS, THEN TRADE AWAY MY NAILS TO SOMEBODY WHO HAD SHOES. OH, MAN. THIS IS REALLY A PAIN IN THE NECK. BUT THEN I START TALKING TO OTHER PEOPLE AND THERE'S MORE PEOPLE UP AND DOWN THE ROAD HERE. HERE'S A GUY OVER HERE AND HE MAKES FURNITURE. HAS FURNITURE, WANTS NAILS. MAYBE THERE'S A GUY OVER HERE -- 'CAUSE, YOU KNOW, NAILS, THAT KIND OF COMES IN HANDY OUT ON THE FARM. YOU MAKE FENCES, YOU MAKE BARNS, YOU MAKE HOUSES. AND SO THIS GUY RIGHT HERE HAS SHEEP, WANTS NAILS. AND I'VE BEEN TALKING TO THESE PEOPLE MOVING UP AND DOWN THE ROAD, YOU KNOW, 'CAUSE I'M TRYING TO FIND SOMEBODY TO TRADE MY BARLEY. AND,

26 ECO LECTURE BOY, NOT TOO MANY OF 'EM WANT MY BARLEY, TO TELL YOU THE TRUTH, 'CAUSE THEY'VE GOT LAND OUT BEHIND THE HOUSE AND THEY'RE ALL GROWING THEIR OWN BARLEY, MAINLY. BUT ANYWAY, THESE PEOPLE WANT THE NAILS. THE NEXT MORNING I GET UP, I GET MY BAG OF BARLEY, AND I GET AN EARLY START. I WALK ALL THE WAY DOWN THE ROAD AND I FIND THIS GUY DOWN HERE, AND I SAY, "HEY, HOW ABOUT DOING WHAT WE DID YESTERDAY?" AND THE GUY SAYS, "WHAT WAS THAT?" AND I SAY, "YOU KNOW, THE TRADE. I GIVE YOU SOME BARLEY, YOU GIVE ME NAILS." HE SAYS, "I'LL DO IT. MY CROP HAS FAILED AND, YOU KNOW, ANYWAY MY LAND'S KIND OF POOR. IT'S NOT VERY WELL IRRIGATED. AND SO, YEAH, THAT'D BE GREAT." HE SAYS, "IN FACT, BRING ME ALL THE BARLEY YOU CAN GET," AND I SAY, "OKAY." SO EVERY DAY I GET UP, I GET ME A BAG OF BARLEY, I GO DOWN THE ROAD, I TRADE THE BARLEY AWAY, I GET NAILS, AND THEN I COME BACK DOWN THE ROAD AND MAYBE I'LL BUY MYSELF SOME SHEEP, YOU KNOW. WE NEED SOME WOOL; WE'RE TRYING TO MAKE SOME TEXTILES HERE, SOME CLOTHING AND SO FORTH, SO I TRADE FOR SOME SHEEP. AND THE NEXT DAY I GO DOWN THE ROAD AND I TRADE AWAY MY BARLEY, I GET SOME NAILS, I COME -- OHHH, HOW ABOUT THIS? I CAN GET SOME FURNITURE FOR MY HOUSE. AND SO IT GOES. NOW I FIND OUT THAT NAILS ARE KIND OF USEFUL TO A LOT OF PEOPLE. AND SO THE FIRST THING I TRY TO DO IS CONVERT THE BARLEY INTO NAILS. NOW I CAN GO UP AND DOWN THE ROAD AND BUY CLOTHING; I

27 ECO LECTURE CAN BUY LIVESTOCK; I CAN BUY, YOU KNOW, MILK OR BUTTER OR WHATEVER; BRICKS TO BUILD MY HOME. THEY HAD THESE CLAY MUD BRICKS. BOY, NAILS COME IN REAL HANDY. I'M ABLE TO TRADE. AND SO HERE'S WHAT'S HAPPENED. AFTER AWHILE -- I'VE GOT A NEIGHBOR OVER HERE, MAYBE THAT WOULD BE YOU, AND YOU SAY, "WHAT'S THE DEAL WITH TOM? HE'S GETTING UP IN THE MORNING AND KIND OF SNEAKING OFF WITH THAT BARLEY, AND HE COMES BACK WITH SHEEP AND CLOTHING AND FURNITURE. THAT SON-OF-A-GUN, WHAT'S HE DOING?" AND THEN YOU SAY, "YOU KNOW WHAT I'M GONNA DO? I'M GONNA SET THE ALARM CLOCK FOR, LIKE, FOUR A.M. AND I'M GONNA GET UP AND FOLLOW THAT GUY DOWN THE ROAD." AND SO YOU GET UP AND YOU FOLLOW ME DOWN THE ROAD AND YOU SEE ME -- THE FIRST THING I DO, I GO ALL THE WAY DOWN HERE AND I GET MYSELF SOME NAILS. TRADE AWAY MY BARLEY AND GET SOME NAILS. THEN I COME BACK AND I START BUYING STUFF. AND THEN YOU KIND OF SAY, "BOY, THAT GUY IS DOING SOMETHING KIND OF WEIRD. I DON'T KNOW IF I FULLY UNDERSTAND WHAT HE'S DOING, BUT HERE'S WHAT HE SEEMS TO BE DOING. HE'S FOUND OUT THAT ONCE HE GETS NAILS, HE CAN BUY ANYTHING HE WANTS WITH THE NAILS." AND DO YOU KNOW WHY THAT IS? BECAUSE NAILS ARE GENERALLY ACCEPTED IN PAYMENT FOR GOODS AND SERVICES. NAILS. IN MY SIMPLE STORY HERE. AND SO NOW WHEN I COME TO THIS NEIGHBOR OVER HERE I SAY, "HOWDY, NEIGHBOR. HOW'RE YOU DOING?" AND "DO YOU HAVE ANY OF

28 ECO LECTURE THOSE CARTS FOR SALE?" SORT OF LITTLE CHARIOTS, YOU KNOW, WITH -- YOU CAN PUT A HORSE OR A COW OR SOMETHING LIKE THAT IN FRONT OF IT AND THEY CAN PULL YOU DOWN THE ROAD. "GOT ANY CARTS FOR SALE?" AND "I'LL GIVE YOU SOME NAILS FOR CARTS." AND THE NEIGHBOR IS THINKING THIS. THE NEIGHBOR -- I'M SORRY -- THAT'S YOU. THE NEIGHBOR SAYS, "I DON'T REALLY NEED NAILS. BUT, ON THE OTHER HAND, TOM IS USING THOSE NAILS TO BUY STUFF UP AND DOWN THE ROAD. HE'S BUYING SHOES; HE'S BUYING, YOU KNOW, LIVESTOCK; BUTTER; AND JUST EVERYTHING HE WANTS." SO THEN WHAT YOU SAY IS, "OKAY." NOW, THIS IS ONLY BECAUSE YOU FOLLOWED ME DOWN THE ROAD AND YOU'VE FIGURED OUT MY SECRET. SO YOU SAY, "OKAY." AND SO YOU TAKE THE NAILS FROM ME. I GOT THE NAILS FROM THAT GUY DOWN AT THE END OF THE ROAD. YOU TAKE THE NAILS, YOU GIVE ME THE CART, AND NOW YOU'VE GOT A BAGFUL OF NAILS. AND NOW YOU START GOING DOWN THE ROAD AND YOU START BUYING THINGS, AND YOU SAY, "MAN, THAT WAS AN AWESOME EXPERIENCE. I'M ABLE TO TRADE FOR THINGS. I DON'T HAVE TO HAUL THIS CART UP AND DOWN THE ROAD, ASKING PEOPLE IF THEY WANT TO TRADE ANYMORE. WHAT I CAN DO IS, AS SOON AS I GET THOSE NAILS IN MY HAND, I CAN JUST HAVE ANYTHING I WANT." AND LET'S DON'T FORGET WHAT HAPPENED. YOU DIDN'T EVEN WANT NAILS. ALL YOU REALLY WANTED WAS ALL THESE OTHER THINGS, AND YOU TOOK THE NAILS BECAUSE YOU KNEW THAT THEY COULD BE USED. BASICALLY, THEY COULD BE SPENT. AND YOU ACCEPTED THE

29 ECO LECTURE NAILS NOT BECAUSE YOU HAD SOME INHERENT NEED FOR NAILS. YOU TOOK THE NAILS BECAUSE YOU KNEW SOMEBODY ELSE WOULD TAKE 'EM. AND DO YOU KNOW WHAT? IF YOU THINK FOR JUST A MOMENT ABOUT MONEY, THAT'S THE ONLY REASON THIS GREEN PAPER THAT YOU'VE GOT IN YOUR POCKET, THESE DOLLAR BILLS, THAT'S THE ONLY REASON THEY'RE WORTH ANYTHING AT ALL. YOU HAVE NO USE FOR GREEN PAPER. YOU DON'T, LIKE, YOU KNOW, WIPE THE SWEAT OFF YOUR FOREHEAD WITH IT. YOU DON'T PAPER WALLS WITH IT. FOR THE MOST PART, WE DON'T WRITE NOTES ON IT. WE DON'T USE IT AS BOOKMARKS. WHAT IN THE WORLD DO WE USE DOLLAR BILLS FOR? AND THE ANSWER IS: WE JUST USE 'EM TO PASS ALONG TO SOMEBODY ELSE. AND SO HERE YOU WERE IN THIS PARTICULAR SITUATION. YOU'VE GOT WAGONS OR CHARIOTS FOR SALE AND YOU ACCEPTED NAILS FOR THAT. NOT BECAUSE YOU NEEDED THE NAILS. YOU ACCEPTED THE NAILS BECAUSE YOU KNEW SOMEBODY ELSE WOULD ACCEPT 'EM. YOU KNEW THAT YOU COULD GET THE THINGS YOU WANT. AND SO WHAT I'M SAYING TO YOU IS THIS -- AND NAILS ARE JUST KIND OF A CRUMMY EXAMPLE HERE. WE COULD'VE USED A LOT OF DIFFERENT THINGS IN THE EXAMPLE. BUT HERE'S WHAT WE FOUND OUT. THERE WAS SOMETHING THAT UP AND DOWN THIS ROAD WAS KIND OF IN GENERAL DEMAND. THERE WAS KIND OF A GENERAL NEED FOR IT. AND ONCE WE DISCOVERED WHAT IT WAS -- AND THERE WASN'T LIKE A SIGN OUT HERE, A BILLBOARD THAT SAYS, "IT'S NAILS," YOU KNOW. IT'S NOT THAT OBVIOUS.

30 ECO LECTURE SOMEBODY HAS TO HAVE THAT SPARK OF INSIGHT. BUT ONCE IT'S FIGURED OUT THAT NAILS ARE GENERALLY ACCEPTED, THEN WHAT YOU WANT TO DO IS JUST HAVE NAILS. EVEN IF YOU HAVE NO USE FOR THEM, AND THAT WAS THE SITUATION YOU FACED HERE. YOU HAD NO USE FOR THE NAILS OTHER THAN YOU KNEW THAT OTHER PEOPLE WANTED THEM. AND SO YOU TRADE AWAY WHATEVER IT IS YOU HAVE TO GET THE NAILS, AND THEN PEOPLE UP AND DOWN THE ROAD -- NOW, WHAT IF WE COME TO, LET'S SAY, THIS GUY RIGHT HERE. LET ME GET MY PEN. LET'S SAY THIS GUY RIGHT HERE HAS MILK FOR SALE, WANTS BRICKS. WILL THIS GUY TAKE NAILS? AND THE ANSWER IS: YEAH, THIS GUY WILL ACCEPT NAILS. NOT BECAUSE HE WANTS NAILS; HE WANTS BRICKS. HE WILL ACCEPT NAILS BECAUSE HE KNOWS OTHER PEOPLE WILL TAKE NAILS. AND HE'LL BE ABLE TO TAKE THOSE NAILS. BASICALLY, I GO DOWN THE ROAD; I TRADE BARLEY, GET NAILS, COME BACK UP HERE. I SAY TO THIS GUY, "HEY, I NEED SOME MILK. WILL YOU TAKE NAILS?" AND HE'S THINKING, "I DON'T WANT NAILS; I WANT BRICKS. BUT YOU KNOW WHAT? I'LL GIVE THE MILK, I'LL TAKE THE NAILS, AND THEN I CAN GO DOWN THE ROAD AND THERE'LL BE SOMEBODY DOWN THE ROAD WHO HAS I WANT WHICH, IN THIS PARTICULAR CASE, IS BRICKS. I'LL TRADE THE NAILS AWAY." SOMETHING VERY MUCH LIKE THIS HAPPENED IN ABOUT THE SAME PERIOD OF TIME -- I THINK A LITTLE AFTERWARDS. WE'RE TALKING ABOUT 2500 B.C. EARLIER. BUT I'M THINKING THAT CLOSER TO 2000 B.C. OR -- AND AGAIN, NOBODY WAS WRITING THIS DOWN, HERE'S THE FIRST DAY THIS

31 ECO LECTURE HAPPENED. BUT I BELIEVE A LITTLE BIT AFTER THE UNIT OF ACCOUNT DEVELOPED, THE MEDIUM OF EXCHANGE DEVELOPED, AND SOMETHING VERY MUCH LIKE THIS HAPPENED. BASICALLY, SOMEBODY CAME DOWN THE ROAD THAT WAS A PEDDLER, SOMEBODY WHO SAID, "HEY, I'VE GOT MERCHANDISE FOR SALE, STUFF FROM TOWN. YOU WANT TO BUY IT?" AND PEOPLE ARE GOING, "YEAH, YEAH. I'LL TRADE YOU BARLEY. I'LL TRADE YOU SHEEP. I'LL TRADE YOU." AND THE GUY SAID, "NO LUCK. THAT'S NOT THE WAY IT'S GONNA WORK. I'M A PEDDLER; I'M GOING DOWN A LONG ROAD; I'M SEVERAL MILES OUT OF TOWN; I DON'T WANT YOUR SHEEP; I DON'T WANT YOUR BARLEY; I CAN'T BE CARRYING ALL THIS STUFF ALONG. PLUS, WHEN I GET BACK INTO TOWN, THERE'S A MILLION PEOPLE THERE WITH SHEEP AND BARLEY AND ALL THIS STUFF. LET ME TELL YOU WHAT I WANT. I WOULD ACCEPT NAILS AND I WOULD ACCEPT, LET'S SAY, SHOES. AND SO WHEN I COME DOWN THE ROAD TOMORROW, OR NEXT WEEK OR NEXT MONTH, I'M BRINGING STUFF FROM TOWN. AND IF YOU WANT TO TRADE WITH ME, YOU SHOULD EITHER HAVE NAILS OR SHOES ON HAND. AND IF YOU DON'T, PLEASE DON'T STOP ME 'CAUSE I JUST CANNOT TRADE WITH YOU." SOMETHING BECOMES GENERALIZED PURCHASING POWER, MEDIUM OF EXCHANGE. SO WE HAVE SPENDING MONEY, BASICALLY. THE NAILS IN OUR STORY HERE BECAME SPENDING MONEY. IN REALITY, BACK IN THIS PERIOD AT SUMER, 2000 B.C., A FEW THINGS -- SILVER, BARLEY, AND WOOL -- A FEW THINGS, REALLY NOT VERY MANY, BUT A FEW THINGS WERE

32 ECO LECTURE ACCEPTED AS THE MEDIUM OF EXCHANGE. YOU COULD TAKE THOSE THINGS AND GENERALLY PAY YOUR BILLS WITH THOSE THROUGHOUT SOCIETY. A THIRD FUNCTION PERFORMED BY MONEY: MONEY IS A STORE OF VALUE. WHAT WE MEAN BY A STORE OF VALUE IS THIS -- AH, I DON'T WANT TO GO ON TO THAT. LET ME STOP RIGHT THERE AND JUST ADD A LITTLE MORE TO THE MEDIUM OF EXCHANGE, AND THEN WE'LL STOP FOR THE DAY. THERE'S REALLY NOT TIME TO LAUNCH INTO SOME LONGER DISCUSSION. WHAT I WANTED TO SAY HERE IS THAT WITHOUT MONEY, WITHOUT THE MEDIUM OF EXCHANGE, THEN WE'D HAVE WHAT WE TALKED ABOUT BEFORE: HIGH TRANSACTIONS COST. THE HIGH TRANSACTIONS COST. A LOT OF TRAVEL, A LOT OF CONVERSATION, A LOT OF INQUIRING "WOULD YOU TRADE WITH ME?" YOU KNOW, THE BAD THING ABOUT THESE TRANSACTIONS COSTS -- WALKING DOWN THE ROAD, TALKING TO PEOPLE, "WILL YOU TRADE WITH ME?" -- THE BAD NEWS ABOUT THAT IS IF -- I'M A BARLEY FARMER. I'VE GOT A FIELD OUT BACK AND IT NEEDS TO BE FARMED, AND I'M NOT THERE ON THE FARM DOING ANY WORK. I'M LOOKING FOR TRADING PARTNERS SO MY FIELD'S NOT AS PRODUCTIVE AS IT WOULD BE. HIGH TRANSACTIONS COSTS MEAN LESS PROSPERITY IN SOCIETY. WE ARE BURNING UP RESOURCES JUST TRYING TO CARRY OUT TRADES. WHEREAS WITH MONEY, IT WOULD BE EASY TO TRADE. WHAT DO YOU DO IF YOU HAVE MONEY AND YOU WANT TO BUY -- WHAT DID I WANT TO BUY -- GOSH, DINNER. WHAT I'D DO IS I'D JUST GO TO A RESTAURANT AND I'D SAY, "HERE'S DOLLAR BILLS." THEY DON'T HAVE ANY NEED FOR THE DOLLARS,

33 ECO LECTURE BUT THEY KNOW THEY CAN SPEND THE DOLLARS ELSEWHERE SO I GET MY DINNER. THAT'S WHERE WE'LL PICK UP ON MONDAY, WITH THE THIRD FUNCTION PERFORMED BY MONEY. SO LONG.