WEBVTT NOTE What is Money? - Part One 1 00:00:00.000 --> 00:00:09.200 What is money? The question of money is probably one of today's most vital questions. Some 2 00:00:09.200 --> 00:00:14.200 people contend that it is the root of all evil, and some people contend that it is the 3 00:00:14.200 --> 00:00:20.440 root of all good. Actually, what it is, is the medium of exchange, and that's really 4 00:00:20.440 --> 00:00:28.780 all it's supposed to be. Money is the device that we use by means of which we exchange 5 00:00:28.780 --> 00:00:34.440 Goods for Goods, Services for Services, or Services for Goods. 6 00:00:34.440 --> 00:00:42.080 In the final analysis, all exchanges have to be translated ultimately into the area 7 00:00:42.080 --> 00:00:44.040 of barter. 8 00:00:44.040 --> 00:00:48.820 When we talk in terms of barter, we're talking in terms of a direct exchange, a good for 9 00:00:48.820 --> 00:00:52.860 a good, a good for a service, a service for a service. 10 00:00:52.860 --> 00:01:01.660 But because of the vast variety, kind, size, and presumed value of the things that we exchange, 11 00:01:01.660 --> 00:01:08.140 it is very helpful for us to translate whatever it is that we have that we want to exchange 12 00:01:08.140 --> 00:01:15.100 into a kind of neutral thing that we can then retranslate back into whatever it is that 13 00:01:15.100 --> 00:01:16.900 we want. 14 00:01:16.900 --> 00:01:26.380 It would be very, very cumbersome for us, for example, to deal in simple barter in 15 00:01:26.380 --> 00:01:29.500 a very complicated economy. 16 00:01:29.500 --> 00:01:33.720 For instance, consider the products that exist in a grocery store. 17 00:01:33.720 --> 00:01:37.340 We all have access to grocery stores today. 18 00:01:37.340 --> 00:01:45.960 Suppose you who work in a grocery store only had grocery store products to trade for other 19 00:01:45.960 --> 00:01:48.160 and the things that you wanted to buy. 20 00:01:48.160 --> 00:01:52.680 You'd be engaged in trading dozens of eggs or perhaps thousands of eggs in order to pay 21 00:01:52.680 --> 00:01:55.000 for your rent or to buy a car. 22 00:01:55.000 --> 00:02:00.020 Maybe you'd have to exchange so many hams for a car or so many jars of peanut butter 23 00:02:00.020 --> 00:02:03.160 for this, that or the other. 24 00:02:03.160 --> 00:02:09.280 It would be completely cumbersome and of course the number of exchanges would be reduced fantastically. 25 00:02:09.280 --> 00:02:16.320 Now in the early days, and whenever this was we don't know, I have read any number of 26 00:02:16.320 --> 00:02:24.040 presumably authoritative works on the origin of money, and most of the writers of these 27 00:02:24.040 --> 00:02:30.280 treatises come up with a date when they presume money was first put into use, but every one 28 00:02:30.280 --> 00:02:35.040 that I read has a different date as to when it was first used, and I've had to reach 29 00:02:35.040 --> 00:02:37.360 the conclusion that we're not really sure. 30 00:02:37.360 --> 00:02:40.760 We only know that money has been around for a long time. 31 00:02:40.760 --> 00:02:48.960 But anyway, back before money was used, before anybody had come up with the idea of money, 32 00:02:48.960 --> 00:02:51.880 we used to exchange things by barter. 33 00:02:51.880 --> 00:02:58.240 Now, when you're using barter, and this can be done, in fact, it's still done today. 34 00:02:58.240 --> 00:03:03.480 Small boys are constantly engaged in direct swapping. 35 00:03:03.480 --> 00:03:05.000 Small girls do this, too. 36 00:03:05.000 --> 00:03:06.680 And bigger boys and girls do it. 37 00:03:06.680 --> 00:03:14.200 There's nothing wrong with it. And whenever you find something that you want and you've got something 38 00:03:14.200 --> 00:03:20.040 that somebody else wants and you can make the exchange, fine, that's no problem. As a matter 39 00:03:20.040 --> 00:03:25.560 of fact, that's one way of avoiding income taxes. Because if you make an exchange that doesn't involve 40 00:03:25.560 --> 00:03:30.840 money, well, usually since there's no money involved, we don't even know that the exchange 41 00:03:30.840 --> 00:03:37.720 has taken place and conceivably you wouldn't have to worry too much about keeping reports 42 00:03:37.720 --> 00:03:44.720 on swapping something of presumed $10 worth of value for something else worth $10. 43 00:03:44.720 --> 00:03:48.240 There wouldn't be any income or any tax to pay in relation to it. 44 00:03:48.240 --> 00:03:51.360 So maybe it's a good idea in that connection. 45 00:03:51.360 --> 00:03:53.920 The only thing is it would be very, very awkward. 46 00:03:53.920 --> 00:03:59.120 Now back in the old days, how it used to be done was this. 47 00:03:59.120 --> 00:04:06.760 Let's suppose that there was an early tribe of people that became very proficient at manufacturing 48 00:04:06.760 --> 00:04:09.060 stone axes. 49 00:04:09.060 --> 00:04:15.840 It is true that many, many people did begin the process of making stone axes. 50 00:04:15.840 --> 00:04:18.320 So we'll imagine a tribe that was good at it. 51 00:04:18.320 --> 00:04:22.360 They made a lot of axes, more than they could use. 52 00:04:22.360 --> 00:04:28.480 And since they were good at making these particular objects, a lot of other people who weren't 53 00:04:28.480 --> 00:04:32.500 as good at making them were interested in getting hold of them. 54 00:04:32.500 --> 00:04:35.560 Now this would be the way it would be done. 55 00:04:35.560 --> 00:04:44.820 A tribe having a good in surplus would approach the location of another tribe that possibly 56 00:04:44.820 --> 00:04:47.200 might want to exchange something. 57 00:04:47.200 --> 00:04:53.400 And the procedure was to let the other party know that you're there with goods of whatever 58 00:04:53.400 --> 00:04:56.140 kind for exchange. 59 00:04:56.140 --> 00:05:02.180 So then the members of the other tribe come out, and you stand in a kind of a, well, it's 60 00:05:02.180 --> 00:05:07.180 almost in battle array with one tribe on one side of a field and the other tribe on the 61 00:05:07.180 --> 00:05:10.820 other, and everybody's very suspicious of each other. 62 00:05:10.820 --> 00:05:18.040 And then the tribe who has something to offer comes forward and they deposit little mounds 63 00:05:18.040 --> 00:05:23.440 of goods that they would like to exchange, and they put it down on the ground at intervals, 64 00:05:23.440 --> 00:05:25.780 and then that group withdraws. 65 00:05:25.780 --> 00:05:30.680 Now with them back out of the way, now the second group approaches these mounds that 66 00:05:30.680 --> 00:05:37.860 have been put down, and they examine what has been left, and then they in turn put alongside 67 00:05:37.860 --> 00:05:43.060 of it the things that they would be willing to exchange in order to acquire the mound 68 00:05:43.060 --> 00:05:47.100 that has been left behind, and then they withdraw. 69 00:05:47.100 --> 00:05:51.820 Then the first group comes back and examines what has been left there, and if they are 70 00:05:51.820 --> 00:05:57.340 are satisfied in each particular, that is, each individual, confronting now two stacks 71 00:05:57.340 --> 00:06:03.700 of goods, if he's satisfied with the offer made, then he picks up the offer that has 72 00:06:03.700 --> 00:06:08.700 been made by the other party and leaves what he offered first, and that exchange then is 73 00:06:08.700 --> 00:06:09.700 completed. 74 00:06:09.700 --> 00:06:13.620 He withdraws and the other party comes up and takes what was first offered. 75 00:06:13.620 --> 00:06:18.360 But if he's not happy with it, then he does one of two things. 76 00:06:18.360 --> 00:06:22.840 He indicates that he doesn't want to trade by picking up everything that he had first 77 00:06:22.840 --> 00:06:28.740 offered and he retires, or he takes some of that out, indicating that he would be willing 78 00:06:28.740 --> 00:06:31.680 to make the exchange but at a lesser price. 79 00:06:31.680 --> 00:06:37.400 And this kind of haggling can go on for days before anything is really exchanged. 80 00:06:37.400 --> 00:06:41.200 Well, obviously, it can work. 81 00:06:41.200 --> 00:06:46.840 If you have nothing else to do and you don't mind spending hours, days or weeks making 82 00:06:46.840 --> 00:06:52.680 a simple transaction, you can get along that way. Obviously, you could not conduct modern 83 00:06:52.680 --> 00:06:59.720 business in this method, but that's the way, undoubtedly, we began it. Somewhere along 84 00:06:59.720 --> 00:07:07.920 in the history of man, we came up with the idea of taking something that was just universally 85 00:07:07.920 --> 00:07:15.720 desirable and trading everything into that something, which everybody wanted, and then 86 00:07:15.720 --> 00:07:20.840 Then we could use that generally in making any kind of an exchange, and thus we come 87 00:07:20.840 --> 00:07:27.560 to the first and the major characteristic of money. If money is to be useful, it has 88 00:07:27.560 --> 00:07:35.840 to be universally desirable. People have to want it, for some reason. An ideal money would 89 00:07:35.840 --> 00:07:41.860 be a kind of money that any human being in the world would be willing to accept at any 90 00:07:41.860 --> 00:07:46.860 Any time in exchange for just about anything else you could come up with. 91 00:07:46.860 --> 00:07:49.860 Actually, we've never had such a money. 92 00:07:49.860 --> 00:07:52.020 But that would be the ideal. 93 00:07:52.020 --> 00:07:58.860 Something that is so universally acceptable that anybody would always be willing to accept it. 94 00:07:58.860 --> 00:08:05.520 Now, before going further, it would be important that we realize that money has appeared in 95 00:08:05.520 --> 00:08:08.300 three broad types. 96 00:08:08.300 --> 00:08:11.720 There is what we call commodity money. 97 00:08:11.720 --> 00:08:19.080 Then there is credit money, and ultimately there is fiat money, and there are combinations 98 00:08:19.080 --> 00:08:20.760 of these. 99 00:08:20.760 --> 00:08:24.880 What we call commodity money is simply this. 100 00:08:24.880 --> 00:08:31.080 It would be a commodity that is universally desirable. 101 00:08:31.080 --> 00:08:36.320 Everybody would want it, you see, or at least theoretically nearly everybody would want it, 102 00:08:36.320 --> 00:08:42.520 And then we would use it either as a commodity or as money. 103 00:08:42.520 --> 00:08:45.860 Now that's the characteristic of commodity money. 104 00:08:45.860 --> 00:08:52.040 You have a commodity that can be used either way at the discretion of the owner. 105 00:08:52.040 --> 00:08:56.280 The owner can call it money or he can call it a commodity. 106 00:08:56.280 --> 00:08:59.680 And we've had a long experience in this type of money. 107 00:08:59.680 --> 00:09:05.940 Actually, we have used so many different types of commodities here that the list is impressive 108 00:09:05.940 --> 00:09:35.940 and Almost Endless, 109 00:09:35.940 --> 00:09:44.580 One of the fantastic episodes in the history of money was the tulipomania that arose in 110 00:09:44.580 --> 00:09:51.080 Holland better than a hundred years ago, where tulips were being exchanged virtually as though 111 00:09:51.080 --> 00:09:55.340 they were money and items of tremendous value. 112 00:09:55.340 --> 00:10:00.380 Just the bulb of the tulip was the item in exchange. 113 00:10:00.380 --> 00:10:08.840 In addition to that type of food, we have used various meat products. 114 00:10:08.840 --> 00:10:13.580 We've used sides of beef or rashers of bacon. 115 00:10:13.580 --> 00:10:23.380 We've used living animals, food animals like hogs and sheep and goats and turkeys and chickens 116 00:10:23.380 --> 00:10:25.340 and ducks and cows. 117 00:10:25.340 --> 00:10:28.260 We've even used human beings as money. 118 00:10:28.260 --> 00:10:36.920 Men, women, and children have been used as money and exchanged for purposes of facilitating 119 00:10:36.920 --> 00:10:40.540 the happiness of people, if you can imagine. 120 00:10:40.540 --> 00:10:49.980 We've also used such things as other growing crops such as tobacco, hemp, various drugs, 121 00:10:49.980 --> 00:10:51.820 narcotics have been used as money. 122 00:10:51.820 --> 00:10:57.480 I'm told today that where American soldiers go, often there is a kind of money that is 123 00:10:57.480 --> 00:11:00.080 is used which we call tobacco. 124 00:11:00.080 --> 00:11:06.700 I'm informed by my GI friends that it's surprising what a person can buy today with a handful 125 00:11:06.700 --> 00:11:10.080 of cigarettes or maybe even just one or two cigarettes. 126 00:11:10.080 --> 00:11:17.600 And we have used chocolate and chocolate bars, incidentally, and silk stockings, I'm told. 127 00:11:17.600 --> 00:11:23.320 There's virtually a limitless array of things that are commodities in themselves but which 128 00:11:23.320 --> 00:11:31.320 which we can use as money to facilitate exchange. 129 00:11:31.320 --> 00:11:33.180 As I said, the list is almost endless. 130 00:11:33.180 --> 00:11:39.160 It's hard to think of an area here where we haven't ever used it as money. 131 00:11:39.160 --> 00:11:43.120 We've used hides, tanned and untanned. 132 00:11:43.120 --> 00:11:50.260 We've used leather goods, finished goods, lumber, building materials. 133 00:11:50.260 --> 00:11:54.620 You name it and it's probably been used somewhere as money. 134 00:11:54.620 --> 00:11:57.860 So it's a very, very big area, commodity money. 135 00:11:57.860 --> 00:12:04.220 Now one of the most successful types of money that we've used has been in the field of 136 00:12:04.220 --> 00:12:06.260 the precious metals. 137 00:12:06.260 --> 00:12:12.200 And in this particular gold and silver have probably had the best history, although there's 138 00:12:12.200 --> 00:12:17.160 no other metal that I know of that we haven't also played around with in this area. 139 00:12:17.160 --> 00:12:23.760 We've used iron and zinc and brass and copper, various alloys, and we are still using them, 140 00:12:23.760 --> 00:12:25.320 aluminum, tin. 141 00:12:25.320 --> 00:12:29.560 Again, it would be hard to think of a kind that hasn't been used. 142 00:12:29.560 --> 00:12:36.440 We've also used not the precious metals, but the coarse, the base metals. 143 00:12:36.440 --> 00:12:43.200 We've also used stones, precious, semi-precious, and not precious at all. 144 00:12:43.200 --> 00:12:52.020 that any time we use a substance or a thing that is a commodity, it fulfills a human desire 145 00:12:52.020 --> 00:12:57.740 for satisfaction, but in addition it could be used as money. Well, that's commodity 146 00:12:57.740 --> 00:13:03.120 money. That's what we call it. One of the reasons, for example, why gold and silver 147 00:13:03.120 --> 00:13:09.380 have done so well is because gold and silver seem to fulfill many of the requirements of 148 00:13:09.380 --> 00:13:18.440 For some curious reason, and I don't propose to know what the reason is, gold has almost 149 00:13:18.440 --> 00:13:25.900 always been acceptable by people. There is nothing magic about the metal. It has no particular 150 00:13:25.900 --> 00:13:32.020 qualities that place it in a class by itself, excepting that for some reason people like 151 00:13:32.020 --> 00:13:38.060 it. They have confidence in it. They believe in it. The expression, as good as gold, has 152 00:13:38.060 --> 00:13:43.580 has been around for many, many millennia. We keep thinking in terms of gold as being 153 00:13:43.580 --> 00:13:50.180 a standard for money. Why we do this, I cannot tell you. I only know that we do it. And because 154 00:13:50.180 --> 00:13:55.920 we do it, then, gold has that characteristic. In other words, one of the most important 155 00:13:55.920 --> 00:14:02.660 things about money is that it be universally acceptable. And gold is almost always universally 156 00:14:02.660 --> 00:14:03.860 be Acceptable. 157 00:14:03.860 --> 00:14:06.220 So that's a very important point. 158 00:14:06.220 --> 00:14:10.980 Another thing that we want out of money, we want money not only to be acceptable, but 159 00:14:10.980 --> 00:14:16.020 we would like it to sort of retain its purchasing power. 160 00:14:16.020 --> 00:14:21.940 If you trade a commodity into money, and translate it so you no longer have the commodity but 161 00:14:21.940 --> 00:14:26.740 you have the money, then when you want to spend the money, you'd like to be able to 162 00:14:26.740 --> 00:14:33.700 to buy with it the same amount of goods and services as you could have bought at the time 163 00:14:33.700 --> 00:14:37.420 you originally translated your commodity into money. 164 00:14:37.420 --> 00:14:45.060 If the purchasing power of the money has gone down in the interim, then you feel cheated 165 00:14:45.060 --> 00:14:51.680 because let's suppose that you sold, we'll say that wheat is selling at a dollar a bushel, 166 00:14:51.680 --> 00:14:58.080 You have 10,000 bushels. You sell the 10,000 bushels and get $10,000. And at the time that 167 00:14:58.080 --> 00:15:06.140 you got the $10,000, you could purchase a market basket containing, let us say, X, Y 168 00:15:06.140 --> 00:15:13.980 and Z. But time passes because you don't want all of X, Y and Z at once. But now when you 169 00:15:13.980 --> 00:15:18.920 finally do want to buy it, you go to the store and you discover that you can still afford 170 00:15:18.920 --> 00:15:27.920 to buy X and Y. But Z you cannot because the $10,000 that you obtained for your crop 171 00:15:27.920 --> 00:15:33.720 will now no longer buy it and you have to take Q minus 10. So you get X and Y and then 172 00:15:33.720 --> 00:15:41.640 Q minus 10 on what you really wanted with Z. Now you'll feel defrauded, cheated, because 173 00:15:41.640 --> 00:15:45.760 if you had made that exchange at the time you got rid of your wheat, you'd have gotten 174 00:15:45.760 --> 00:15:51.840 in the full package, but now you only get a portion of the package, the larger portion, 175 00:15:51.840 --> 00:15:55.880 but some of it you can't command anymore with the money that you had. 176 00:15:55.880 --> 00:16:00.800 So we do want to have money that tends to retain its purchasing power. 177 00:16:00.800 --> 00:16:03.640 That's a very important thing for us. 178 00:16:03.640 --> 00:16:08.240 Another thing that we want with money, we want it to be relatively durable. 179 00:16:08.240 --> 00:16:12.360 We don't want to—and this is one of the problems, of course, that has cropped up when 180 00:16:12.360 --> 00:16:13.900 we use food for money. 181 00:16:13.900 --> 00:16:23.160 We don't want a money that will melt or dissolve or spoil or be eaten by rats or something. 182 00:16:23.160 --> 00:16:29.840 If you've got your money in the form of grain and then the mice break in and eat your grain, 183 00:16:29.840 --> 00:16:33.100 well then you've lost your money, and that's pretty rough. 184 00:16:33.100 --> 00:16:38.860 So this is another reason why people have tended to like gold and silver and hard types 185 00:17:08.860 --> 00:17:38.860 10. Gold and silver tend to do this. You can weigh it out and get a precise weight, and then you can stamp on the metal just exactly how much it does weigh or what it is supposed to be worth, and the stamp goes right on the face of the metal, and assuming that the people who made it were honest and all the other factors, you've got a type of money that tends to resist erosion, it tends to resist wild fluctuations in purchasing power, 186 00:17:38.860 --> 00:17:45.980 It is easy to figure with, and it is universally desirable. What is wrong with it, then? 187 00:17:45.980 --> 00:17:52.860 The basic difficulty with metal money, notably gold, is that it is very inconvenient, and 188 00:17:52.860 --> 00:18:00.180 we want money that is convenient. It is fine for purchasing small items. Most of us would 189 00:18:00.180 --> 00:18:05.180 like to carry a few coins with us, gold or silver, or of some kind of metal, with which 190 00:18:05.180 --> 00:18:13.420 to buy the small daily little items that aid in our comfort and convenience and so on. 191 00:18:13.420 --> 00:18:18.360 You buy a newspaper and you ride a streetcar or whatever you do, and it's nice to have 192 00:18:18.360 --> 00:18:20.200 a few items of change. 193 00:18:20.200 --> 00:18:25.660 But if you wanted to make a major purchase and you had to depend exclusively on gold 194 00:18:25.660 --> 00:18:32.780 and silver, you might have to hire a truck to carry the amount of metal that you would 195 00:18:32.780 --> 00:18:40.700 need in order to make a substantial purchase. And so in terms of convenience, gold and silver, 196 00:18:40.700 --> 00:18:48.940 and notably gold, well silver too for that matter, tends to fall short of the ideal. 197 00:18:48.940 --> 00:18:55.020 It isn't really that convenient. Then there is another factor here that many people have raised 198 00:18:55.020 --> 00:18:59.660 as a point. I personally don't think it is too valid in this instance, but many people bring it 199 00:18:59.660 --> 00:19:07.420 out and that is that there is a scarcity. These metals are precious metals and they are valuable 200 00:19:07.420 --> 00:19:15.500 primarily because they are scarce. The characteristic of human beings is, as I'm sure you know, to value 201 00:19:15.500 --> 00:19:21.020 those items most that are in scarce supply and this may be one of the reasons we usually think 202 00:19:21.020 --> 00:19:26.380 so highly of gold. There's so little of it and it's a beautiful metal and we like it and gee, 203 00:19:26.380 --> 00:19:32.300 There isn't very much, and you can't seem to increase the supply readily, so we tend to like it. 204 00:19:32.300 --> 00:19:38.540 And then there isn't enough to go around, so it tends to be scarce, and many people feel that this 205 00:19:38.540 --> 00:19:46.300 is a real disadvantage. Actually, assuming a free market in gold and silver, assuming a free money 206 00:19:46.300 --> 00:19:54.540 market, what would happen would be that although there might not be an abundance of gold or silver, 207 00:19:54.540 --> 00:19:55.540 Power. 208 00:19:55.540 --> 00:20:00.920 The purchasing power of each unit of gold and silver would tend to rise. 209 00:20:00.920 --> 00:20:05.560 But with the kind of intervention that we have in the money market, it's hard to find 210 00:20:05.560 --> 00:20:11.340 out just what it would rise to, because we've never really been allowed to experiment with 211 00:20:11.340 --> 00:20:17.900 it very far in a free market, and consequently it does appear to have certain disadvantages 212 00:20:17.900 --> 00:20:19.960 in the area of supply. 213 00:20:19.960 --> 00:20:26.320 So although we have used it, we have never been content to use that type of money alone. 214 00:20:26.320 --> 00:20:29.280 We always add some other kind of money to it. 215 00:20:29.280 --> 00:20:35.560 Now I've been talking about commodity money, and the one advantage, the one basic advantage 216 00:20:35.560 --> 00:20:42.920 of commodity money is that it tends to be relatively safe. 217 00:20:42.920 --> 00:20:47.400 Even let's suppose you're using wheat as money. 218 00:20:47.400 --> 00:20:53.600 And let us suppose that the value of wheat as money declines so that it will not purchase 219 00:20:53.600 --> 00:20:58.200 what it would be for. Well, you haven't been totally defrauded. You still have the 220 00:20:58.200 --> 00:21:03.840 wheat. And you can, at your own discretion, reconvert it to wheat, grind it up, convert 221 00:21:03.840 --> 00:21:08.600 it to flour, and use the flour to bake bread and other products, and you've got some good 222 00:21:08.600 --> 00:21:16.780 out of it. Now, if you're dealing with a type of money that isn't a commodity, well, there 223 00:21:16.780 --> 00:21:21.940 There isn't any way that you can convert it to your own use without exchanging it. 224 00:21:21.940 --> 00:21:28.180 Commodity money could be converted to your own use without exchange, and that's why 225 00:21:28.180 --> 00:21:34.060 it tends to be relatively safe compared to other types of money. 226 00:21:34.060 --> 00:21:41.100 Now we'll take up the second type that I mentioned, and that is credit money. 227 00:21:41.100 --> 00:21:48.640 Credit, of course, is one thing, and credit money is a particular application of credit 228 00:21:48.640 --> 00:21:57.880 to money. Credit is merely a promise to pay. Credit is an incompleted exchange. Credit 229 00:21:57.880 --> 00:22:07.200 occurs where two persons meet who are willing to exchange, and one party completes the exchange, 230 00:22:07.200 --> 00:22:14.840 But the other party extends his side of the exchange in time. Time becomes a factor in 231 00:22:14.840 --> 00:22:22.040 all credit procedures. For instance, I go to the store and buy, let's say, a suit of 232 00:22:22.040 --> 00:22:31.640 clothing. The suit costs, let me suppose, $100. Fine. But I don't have $100. So I say 233 00:22:31.640 --> 00:22:38.660 to the tailor or to the storekeeper, I've got $25, which I'll give you at this time, 234 00:22:38.660 --> 00:22:46.180 and I'll be very glad to pay you $10 a month for X number of months until I have finished 235 00:22:46.180 --> 00:22:54.640 paying for the suit. And he says, well, fine. So at that point I take the suit and I give 236 00:22:54.640 --> 00:23:05.040 to him a portion of the sales price. As far as he is concerned, he has completed his exchange. 237 00:23:05.040 --> 00:23:10.280 He turned the whole suit over to me, and I now have it. But as far as I am concerned, 238 00:23:10.280 --> 00:23:15.480 I have not completed my end of it. I have only done a part of it, and now I have accepted 239 00:23:15.480 --> 00:23:23.400 the obligation to go on through time and finish paying for the suit. Assuming that I do, ultimately 240 00:23:23.400 --> 00:23:32.760 the exchange is completed and I end up paying the whole price of the suit. But he, the seller, 241 00:23:33.480 --> 00:23:40.680 doesn't get the benefit of the sale until I have finished my contractual relationship with him. 242 00:23:40.680 --> 00:23:51.320 Now that's credit. All credit is nothing more than the extension in time of an exchange. 243 00:23:51.320 --> 00:23:57.100 Instead of having an exchange occur at one instant, a part of the exchange occurs at 244 00:23:57.100 --> 00:24:01.680 one instant, but the rest of it is extended through time. 245 00:24:01.680 --> 00:24:08.800 Now when we're talking in terms of credit money, we are talking in terms of a kind of 246 00:24:08.800 --> 00:24:17.360 money that promises to convert to a commodity at a later time. 247 00:24:17.360 --> 00:24:27.740 So it is a kind of credit, that is, credit money is good, but it is good in a time context. 248 00:24:27.740 --> 00:24:35.360 In this case, I think, without exception, so far as I can presently think, we always 249 00:24:35.360 --> 00:24:41.340 have credit money in forms of paper or some other written evidence. 250 00:24:41.340 --> 00:24:50.340 It could be an Egyptian scroll written on clay, and that could be an item of credit. 251 00:24:50.340 --> 00:24:57.620 It could be written on papyrus or any other method for converting to writing the promise 252 00:24:57.620 --> 00:24:58.620 to pay. 253 00:24:58.620 --> 00:25:01.400 In other words, it would be a kind of an IOU. 254 00:25:01.400 --> 00:25:05.360 An IOU would be a kind of credit money. 255 00:25:05.360 --> 00:25:12.380 And what it merely says is, it would say on the face of it, that this is an item that 256 00:25:12.380 --> 00:25:19.640 we agree is worth so many units of purchasing power, whatever those units are to be called, 257 00:25:19.640 --> 00:25:26.000 and it is redeemable in terms of such and such a commodity at such and such a time or 258 00:25:26.000 --> 00:25:27.000 place. 259 00:25:27.000 --> 00:25:29.800 That's credit money. 260 00:25:29.800 --> 00:25:37.240 of all credit money would be the word redemption or redeem. Credit money doesn't purport to be money. 261 00:25:38.280 --> 00:25:49.400 It simply purports to be a bill of exchange, a method of redemption. It says you can use this 262 00:25:49.400 --> 00:25:57.960 to buy something and later on at a specified time the issuer will reclaim it in terms of some 263 00:25:57.960 --> 00:26:04.960 from Commodity. In the end, you see, all money has to be translatable back into goods or 264 00:26:04.960 --> 00:26:11.060 services. It is simply a medium in exchange, and it has to come back into the world of 265 00:26:11.060 --> 00:26:17.440 reality sooner or later. If you can't redeem it, well, it isn't any good. So credit money 266 00:26:17.440 --> 00:26:27.080 is a written promise to redeem. And as long as the party issuing the money is honest and 267 00:26:27.080 --> 00:26:35.080 One of the big advantages of credit money is that it's convenient. 268 00:26:35.080 --> 00:26:42.160 Since it does appear on paper usually, and isn't metal or sacks of wheat or sides 269 00:26:42.160 --> 00:26:49.000 of beef, you can get a lot of it and carry it around with you, and there's no appreciable 270 00:26:49.000 --> 00:26:52.040 weight or inconvenience to it. 271 00:26:52.040 --> 00:26:56.000 So credit money is a convenient device. 272 00:26:56.000 --> 00:27:02.520 Plus, additionally, because it is credit money, it tends to have at least a temporary speeding 273 00:27:02.520 --> 00:27:10.120 up effect on the market, because whenever you issue credit, you are in essence creating 274 00:27:10.120 --> 00:27:13.360 a facility that speeds up exchanges. 275 00:27:13.360 --> 00:27:19.520 You see, you don't really have the money yet, but you make a half of an exchange because 276 00:27:19.520 --> 00:27:25.840 you know that later on you can redeem it, and this tends to make things move more rapidly, 277 00:27:25.840 --> 00:27:30.520 And it tends to make people more prosperous and there's nothing wrong with it as long 278 00:27:30.520 --> 00:27:32.520 as it's not abused. 279 00:27:32.520 --> 00:27:37.880 So credit money is an important type of money and commodity money is an important type of 280 00:27:37.880 --> 00:27:45.440 money and in fact these are two types of money that we've had a great deal of use with. 281 00:27:45.440 --> 00:27:47.520 They're both perfectly valid. 282 00:27:47.520 --> 00:27:54.380 The credit money is more convenient than commodity money, but the commodity money is probably 283 00:27:54.380 --> 00:27:56.420 Money More Safe. 284 00:27:56.420 --> 00:28:02.460 And assuming a free market in money, that's probably about where our adventures in money 285 00:28:02.460 --> 00:28:03.460 would stop. 286 00:28:03.460 --> 00:28:05.340 We'd probably use both. 287 00:28:05.340 --> 00:28:11.100 We would probably use some commodity money, probably gold and silver, and then we would 288 00:28:11.100 --> 00:28:14.860 have credit money based on gold and silver. 289 00:28:14.860 --> 00:28:22.260 We would issue certificates that say this money is redeemable in so many pieces of gold 290 00:28:22.260 --> 00:28:32.260 We'll think some more on this subject of money before we're through. 291 00:28:32.260 --> 00:28:33.940 It's a very important topic. 292 00:28:33.940 --> 00:28:34.740 Thanks very much.