Lesson Two by xiuliliaofz


									    Lesson 2 – The Nature,
    Origins and Development of
    Money as a Social Institution.
    Part Two
   In the last lesson we discussed the functions and benefits
    of money - in this lesson we discuss how money came

   Suggested Reading: There are no close reading materials
    for this and the last lesson, but some of the material in
    RSU chapter 2 is relevant. You should read the whole
    chapter anyway to get a nice overview of some of what is
    to come.
    Quick Summary
    Lessons 1 and 2
   Money is a social institution like language. Its existence facilitates
    exchange and production. Its prime function is as a medium (means)
    of exchange. It must also be a store of value and usually functions as
    a unit of account.
   Like many social institutions money is an evolved unintended
    outcome of human actions in the pursuit of personal profit and gain.
    All moneys evolved, directly or indirectly, from a commodity that
    was once not money (did not have a monetary function). All modern
    moneys are government moneys. At a fairly early stage governments
    invariably get involved and end up monopolizing the issue of money
    or the money base of a given political entity.
   Operationally money can be measured according to money is as
    money does. For some modern definitions exhibit 1 following.
   Inflation is the prime enemy of money and of a healthy economy.
   The existence of money led to the existence of a very complex
    financial infrastructure that depends on it.
Exhibit 1:
Practical Definitions of Money
 M1. = Currency outside banks plus demand deposits
 (checking accounts) at banks, plus other checkable
 deposits at banks and at all thrift institutions (savings

 M2. = M1 plus small-denomination time deposits (savings
 accounts) plus money market deposit accounts and
 savings deposits at all depository institutions plus retail
 money market mutual funds shares.

 M3. = M2 plus large-denomination ($100,000 and over) time
 deposits at all depository institutions plus institutional
 money market mutual fund shares plus bank repurchase
 agreements and Eurodollars.

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