Episode 1 - What is money?

Recorded 4 November 2014, then gestated for 6 months!


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Introduction

Intro music - Money by Von Korf

Historical ideas

0m20s

• Barter, debt and IOUs preceded money.
• Eggs, fish, wheat are useful and common.
• But gold is rare so must have come later.

Difference (Calming down)

Functions of money

7m56s

• Medium of exchange - no need to barter
• Unit of account - value other goods, like and egg or a fish
• Store of value - money needs to hold its value
• Divisible - you can divide money up into smaller units, e.g. coins
• Fungible - each gold coin of the same size is equal in value

RDP - Sandeep Bhandari

Accepting money

12m6s

• Why accept money?
• How can you establish a new currency?
• Fiat money - money that isn't worth anything itself, e.g. paper notes.
• Governments will only accept tax payments in the currency approved by that government.
• Taxs comes from monarchs raising money for war, "crowd-funded" via the lords.
• We're now used to being taxed.
• Tax money is used for more positive things than war.
• Other currencies can be important in countries even if not demanded for tax, e.g. US dollar.

Due Acque - Robert Rich

Modern money

20m37s

Fiat money, inflation and gold

• Inflation - prices might increase.
• Gold standard - tie value of fiat money to gold.
• Money supply - creating money too fast can cause inflation.
• Gold discoveries have caused inflation.
• Inflation wasn't the norm prior to WW1.
• Bretton Woods meeting in 1944 and John Maynard Keynes.
• The International Monetary Fund (IMF) and naughty Britain in 1976.
• The collapse of Bretton Woods in 1971 - Nixon ended dollar gold standard.

 The Bank of England and the UK

• Currency (i.e. notes and coins) make up 3% of money in circulation.
• The other 97% are deposits held in bank accounts.
• Banks hold accounts with reserves at the central bank.
• Base money = currency (notes and coins) + bank reserves.
• Broad money = currency (notes and coins) + consumer deposits
• Bank of England Quarterly Bulletin with remarkably frank admissions.
• Vast majority of money is in consumer deposits.
• Bank transfers between consumers and between banks.
• Creation of money occurs when a bank loans money.
• There are rules to regulate money creation.
• It's also constrained by market forces - competition between banks.
• Interests rates are one area of competition.
• Financial crisis caused by these constraints being inadequate.
• David Cameron retracted his very unwise call for consumers to pay of their debts.
• If all debts are paid off, there'd be no more money.
• Can't have money without debt, just as you can't do business without trust.

Rich in loss - Sandeep Bhandari

Other links

An excellent take on debt from anthropologist David Graeber:
http://www.bbc.co.uk/programmes/b054zdp6

The wikipedia page on Bretton Woods:
http://en.wikipedia.org/wiki/Bretton_Woods_system