Lecture 19

Lecture 19 - LECTURE 19 ON THE ORIGIN OF MONEY Throughout...

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LECTURE 19 ON THE ORIGIN OF MONEY Throughout history, money has been a lot of different things other than M1. To really understand money, we have to go back to the time before money existed, and learn how it came to be. Trust me; this is the only way to understand what money is and how it became so powerful that it could cause the Great Depression. There are a lot of smart people out there that think that they understand money but they don’t really, because they never took the time to do what we are about to do. This includes a lot of people that call themselves economists. Never have there been so many mistakes made by professionals in any discipline as have been made by the economists that misunderstood money. First, consider a simple economy in which there are a limited number of goods available: 1. Fish 6. Shoes 2. Meat 7. Suits 3. Corn 8. Log cabin 4. Salt 9. Sour-mash whiskey 5. Hides 10. Orchids Assume that everyone in society lives like Jeremiah Johnson, or Robinson Crusoe, (RC) two individuals that lived pretty much alone and fended for themselves when it came to satisfying wants and needs. 1 If RC wants to eat fish, he has to catch fish. If he wants corn, he has to plant it and cultivate it. If he wants meat, he has to hunt. If he hunts, he will obtain both meat and hides with which he can make shoes and suits. If he wants shelter, he can build a cabin. He is going to have to find a source of salt if he is going to survive. If his barrel of corn gets wet and ferments, he will happily discover sour-mash. As a hobby, he can raise orchids. If he labors hard and successfully, he can satisfy his wants and needs. 1 Jeremiah was a mountain man that chose to live alone. Crusoe was stranded on a desert island.
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Fortunately, except in a few occasions such as RC and Jeremiah, humans have never behaved like this: providing all of their wants and needs by producing everything themselves. Instead, humans, from the very beginning, specialized . 2 Some became fishermen, some became farmers, some became shepherds, some became bakers, some became carpenters, and some became miners. Almost no one did everything for themselves like RC and Jeremiah. Why? Specialization, or the division of labor, led to a virtual explosion in the amount of output that could be produced by a society. Why does the division of labor lead to an explosion in the level of output? There are three reasons. 1. TIME SAVED Where one hunts is often a great distance from where one fishes and where one farms. If a person hunts and fishes and farms in the same day, a lot of time is wasted going from one activity to the other. 2. IMPROVEMENT IN SKILLS If all one does is hunt, they get better at it. If all they do is farm, they get better at it. Much better than if they try to do everything as a “jack of all trades”. 3.
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Lecture 19 - LECTURE 19 ON THE ORIGIN OF MONEY Throughout...

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