What Is Money?  The Grease That Skids The Tracks of Economies
Saturday, December 31, 2011  It sounds like a simple question,
but like a lot of simple questions, this one gets more and more
slippery as you try to pin down the answer.  One way to
understand money is to ask how people would exchange goods and
services without it. Before the invention of money, buying and
selling was carried out by bartering, that is, by trading one
good or one service for another. Although bartering is simple,
it has two important disadvantages compared to using money.
First, it is inflexible; second, it does not provide a great
deal of incentive for people to increase their productivity.
Consider the following example.  Farmer Brown lives in a town
with no formal monetary system. Every year, he plants corn in
the spring and harvests it in the late summer. At harvest time,
he trades his corn for whatever goods and services he can find
in his immediate neighborhood.  Harley Hahn Click to enlarge
photo  Harley Hahn  Over the year