Fed News Friday: What is Money in 2011?

This week, I decided we should lay down some foundational elements of discussion before we go any further. What would Fed News Friday be without understanding where all this money comes from or where it originated from?

If you are a fan of Murray Rothbard, you know that he loves dividing ham sandwiches and using tractors to explain the grief with bartering and currency. He also claims in The Case Against the Fed that money doesn’t just appear as a medium of exchange. The government can’t just close its eyes, spin around, and pick the money for a country. It develops. Today we may see that America uses paper currency, backed by debt, for purchases and though its worth amounts to nothing…the American people still exchange their hard work for it.

If you walked around and asked the public today what money is (oooh do I smell another Harvard Square visit), they would most likely answer dollars, credit cards, checks, coins, etc. Even economist Paul Krugman finds himself describing it in this ever-changing fashion.  This outlook seems to be missing an important element: the fundmentals of money and its origin. When and why did people begin to accept dollar, credit cards, checks, and coins as money? Why isn’t Murray’s ham sandwich in your wallet?

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