CHAPTER TWO
Money

Although output is more important than wealth in the study of macroeconomics, one particular form of wealth—money—occupies a very special place in the field. Money serves many purposes in a market economy, but one of the most vital is to facilitate exchange. Without money, the exchange of goods and services would be far less efficient. As the British philosopher David Hume put it in the middle of the eighteenth century, money is not one “of the wheels of trade: It is the oil which renders the motion of the wheels more smooth and easy.”1

Just imagine how complicated trade could become in the absence of money. If you were a farmer who grew wheat and wanted to take your family out to dinner, you would have to find a restaurant ...

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