Chapter 1
In primitive societies where members of a household would produce for themselves most of the products and services they needed to survive transactions with outside suppliers were rare. Because these transactions were rare it was common to use barter exchange rather than having a common form of payment like we use today. Barter exchange would involve a direct swapping of products and service and requires a buyer to track down a seller. The buyer would have to find someone who wants to sell what the buyer wants, who will accept the buyers offer of exchange of products and services, and who can reach an agreement with the buyer upon the terms of their exchange. This process requires a lot of time and effort so it is inconvenient unless transactions are rare.
For most societies, including our own, barter exchange was too large of a process to adhere to once purchase and transactions became so common. We switched to specialization. Specialization creates a system that uses a medium of exchange. Anything that is commonly used as a medium of exchange is considered money.
The supply of money must be carefully controlled. The money control for the US is the responsibility of the Congress. Money is actually created by privately-owned and operated enterprise we call banks, financial institutions that offer transaction accounts, but is carefully watched over by government regulators. If the money supply was not carefully controlled the economy could easily fall to pieces. Inflation, a sustained rise in the average level of prices, could quickly occur because of too large a money supply. A recession could occur because of too little ...