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PRESENTER:
- Welcome one and all. Not all of today's experts have had a chance to contribute but our switchboard has been flooded with calls so their chance will surely come. I'm hearing in my earpiece that many listeners are wondering about money So, professor Smallwage, you represent the review "highs and lows". When did money originate and what's it used for?
PROFESSER SMALLWAGE :
- It's almost as old as time so it must be of some use, wouldn't you say?
PRESENTER:
- I have to stop you there because we're going to take a call from Patrick …Hello Patrick… ?
PATRICK:
- Yes, hello. I'd like to know why we don't just exchange one product for another?
PROFESSOR SMALLWAGE :
- Your listener should read Aristotle. Indeed, four centuries BC, this illustrious philosopher turned his attention to the functioning of trade and the economy, asking himself the very same question.
PRESENTER:
- We're all ears…
PROFESSOR SMALLWAGE:
- Aristotle showed that in many cases, finding the person with whom you could exchange a product was too risky. You've got some bread and you want wine. If you find someone with wine, will this person be in need of bread? There's no guarantee. However, if bread, wine or any other product or service has a monetary value then the problem is solved.
PATRICK:
- But what if I prefer to hold onto my money..?
PROFESSOR SMALLWAGE :
- You create a store of value which allows you to wait a while before buying. That's another advantage of money...
PRESENTER:
- Professor Smallwage, does the amount of money in circulation have any importance?
PROFESSOR SMALLWAGE:
- Of course. For instance, if the money supply rises faster than that of manufactured goods, then their prices may go up. In the 16th century, a French lawyer, Jean Bodin, offered an excellent analysis of this phenomenon.
PRESENTER:
- We understand. At the time, Europe was sagging under the weight of gold and silver brought back from the Americas…
PROFESSOR SMALLWAGE:
- That's right and Jean Bodin attributed the rise in prices to this massive monetary inflow. Milton Friedman, Nobel Prize winner in 1976, was saying the same thing when he insisted that the money supply should be controlled by central banks to prevent inflation.
PRESENTER:
- Ah, I'm being told in my earpiece that Patrick may have a point to make?!
PATRICK:
- Yes, thanks.
So does all this mean that money only impacts prices and not business activity?
PROFESSOR SMALLWAGE :
- Not really…
Some economists believe that an increase in the money supply does not necessarily lead to higher prices. In an initial phase, it can stimulate growth in activity as long as unemployment persists. And for others, such as Keynes, money neither impacts prices nor activity, in the case of a crisis of confidence, for instance, when everyone prefers to hold onto their cash rather than spend.
PRESENTER:
- Thanks a lot Patrick and goodbye. We're now going to take another call from a listener…
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