Money Matters: Introduction Part 2

In addition to the topics raised in the last post, we will discuss the following topics on the way to a fuller understanding of the importance and function of money.

Monetary Systems

We will examine the essential characteristics of an unfettered monetary system. How would people use money if governments and central banks did not interfere with the system?

Banking Systems

We refer to the organizations that handle the storage and transfer of money as banks. A network of banks forms what we call the banking system.

Banking systems can facilitate the coordination of basic banking functions. But, they can also manipulate the underlying monetary system.

Subsistence Fund

When we use money in market transactions, the money simply facilitates goods for goods transfers. Those transfers involved a vast number of goods, and each transaction has a different characteristic.

To make general statements about money I will describe a mental model frequently referred to as a “Subsistence Fund.”

Without further description, the subsistence fund consists of a collection of consumer goods required for the population of an economic system to subsist. I will flesh out this description later on this blog.

Pricing Mechanisms

Pricing mechanisms — particularly those based on money — perform a critical function in the transfer of market information.

We will examine market pricing and how flexible prices facilitate dynamic markets.

Intervention

Unfortunately, government and the banking system intervene in the smooth flow of money. This intervention disrupts the pricing mechanism creating a massive amount of misinformation within otherwise effective and efficient markets.

Money Myths

During the course of this blog, we will address many of the misconceptions about money and the banking system. We will address some of the more egregious myths and misstatements about money and banking.

Conclusion

Many people seem to disconnect money from goods or products. They either mention money and say very little about products exchanged, or they mention products and basically ignore the existence of money. Every mention of economic transactions should include the interrelationship between products and money.

The lack of systemic thinking provides one reason why people talk about one side of these exchanges and not the other.

Ignorance and misunderstanding provide another reason for people to ignore the connection between goods-for-goods exchanges and the role of money.

Money Matters will address these connections and correct much of the ignorance and misunderstanding about money and markets.

The next time you go to a store, a coffee shop, or a restaurant, think about the critical role that money plays in your everyday life. Don’t you think you should understand it?

 

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