What Is Money?
In Chapter 1, you learned that virtually all economic activity occurs in the form of transactions in which goods or services are exchanged for money. No money, no transactions. Wages, prices, taxes, spending, deficits, surpluses, and debt are all expressed in money.
That’s what we mean when we say that money is a medium of exchange. It facilitates exchanges. The alternative is a barter economy, in which people exchange goods and services for goods and services. In a barter economy, people spend a lot of time facilitating exchanges, because an exchange can occur only when each party has what the other one wants.
Barter is so inconvenient that early societies soon came up with mediums of exchange. Gold, silver, furs, and many ...