‘Money buys goods and goods buy money but in a monetary economy goods do not buy goods. Really, without money the world would not go around.’ -Professor Bob Clower.
‘Inflation is always and everywhere a monetary phenomenon’ -Professor Milton Friedman (1912-2006) Nobel Laureate in Economics
Monetary economics is concerned with the effects of monetary institutions and policy on economic variables including commodity prices, wages, interest rates, quantities of employment, consumption, and production.
Perhaps the simplest way to illustrate the importance of money is to imagine how the world would be if money didn’t exist. We would have to resort to barter — and this means that you would have to find someone who had what you wanted, and you would need to have something (of similar value) that they wanted. This problem of the ‘double coincidence of wants’ means that barter economies are much less efficient than monetary economies – as anyone who has been to Zimbabwe recently (or has studied Weimar Germany) should know. In the absence of a government that creates a common medium of exchange, money emerges naturally: cigarettes became the common ‘currency’ in prisoner of war camps during recent conflicts.
The study of monetary economics enables us to understand not just how an economy functions efficiently but also how monetary policy can help the economy adjust from one state to another and how it can find balance and grow.
Dr. Kent Matthews, University of Cardiff