Money: Introduction

What is economics about? If you ask someone who has not had an economics course, the person would probably answer "it's about money." And that's a very natural answer, since we have a monetary economy. The most obvious dimensions of economic activity are dimensions of money. Yet, in the first five chapters of this text, we have tried quite hard to avoid talking about money or monetary dimensions, saying that money is a veil, and that's true too -- for many purposes, money is a veil.

But it is also important for economics to understand money and the monetary system, if only to be better able to look under the veil.

The importance of money reflects the most fundamental nature of a modern economic system. In a society without extended division of labor, in which every family produces almost all that they consume, there would be little need for money. However, in a society of the kind that Adam Smith envisioned -- that is, a society like the one in which we live, with a very extended division of labor -- it is hard to imagine living without a monetary system.

This chapter explores some of what we economists think we know about money.

Barter and Monetary Exchange