What Is Money

PREVIEW If you had lived in America before the Revolutionary War, your money might have consisted primarily of Spanish doubloons (silver coins that were also called pieces of eight). Before the Civil War, the principal forms of money in the United States were not only gold and silver coins but also paper notes, called banknotes, issued by private banks. Today, you use not only coins and dollar bills issued by the government as money, but also checks written on accounts held at banks. Money has been different things at different times; however, it has always been important to people and to the economy.

To understand the effects of money on the economy, we must understand exactly what money is. In this chapter, we develop precise definitions by exploring the functions of money, looking at why and how it promotes economic efficiency, tracing how its forms have evolved over time, and examining how money is currently measured.

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