Standford Highlight

Standford Highlight - Economics for Everyone website:

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Economics for Everyone Economics for Everyone website: www.economicsforeveryone.com e-mail JimStanford:author@economicsforeveryone.com A Short Guide to the Economics of Capitalism Jim Stanford Illustrations by Tony Biddle Pluto~'fuSS LONDON • ANN ARBOR, MI
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16 Money and Banking What is money, and what is it good for? In this book, we've tried to discuss economics in very concrete, real terms. Production is how we make useful goods and services. Work is the human effort that goes into that production. Consumption is the use of some of those goods and services to keep us alive, and make life enjoyable. Investment is the use of some of that output as "tools," allowing us to produce even more output in the future. All of these things are real: they all consist of actual goods and services. None of them need be measured in terms of money. They are all real stuff. But just look around at the actual economy: there are dollar signs everywhere. Prices in stores. Amounts in bank accounts. Values on stock markets. GDP in statistical reports. All measured in terms of money. A visitor from Mars would quickly conclude that the economy is totally about money. Yet underneath, the economy must be more real and tangible. Underneath, the economy needs to produce concrete goods and services, to meet concrete needs. Explaining money, and linking the real activities at the core of the economy with the money that represents them (prices, revenue flows, wealth) has bedevilled economists for centuries. What is money, anyway? How are money prices determined? Why do they change over time? How does money affect real economic activity? Very broadly, money is anything that allows its holder to purchase other goods and services. In other words, money is purchasing power. Early forms of money were tangible objects with an inherent value (usually official coins minted by government from precious metal). Today, money is very different: it is usually intangible, and its value depends on social convention and government pronouncement. What's more, in a modern economy money is constantly changing - mostly because .of the creativity of financial companies (like banks) who seek more profitable ways to facilitate financial transactions, and accuI1l11taJ~_3.ndst()r~fLI!3.-,:!ciaJ wealth. !!Id_~e<:l-, in modern capitalism those private companies control the creation of money. 189
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191 190 Economics for Everyone Modern money comes in many shapes and sizes: Currency Currency is no longer minted from precious In, Instead, currency consists of paper money and non-preciC coins officially issued and sanctioned by the government. M people think of "money" as "currency." But in fact curr~~ accounts for a very small share (around 5 percent) of to money in an advanced modern economy. Deposits
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