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6
In Maori tribes, the gift society’
Money is more convenient than barter because it can be used to buy anything, not just the
goods within the two­way barter circle. Its invention has led to more varied and
sophisticated trade, and some have even gone so far as to say it has aided the development
of civilisation.
E.C. Riegel, writing in the 1940s, analysed the roles of money and barter still further. He
said: ‘The sole purpose of money is to split barter into two parts so that the seller is free to
find his source of supply later and elsewhere. Money is issued by a buyer in the act of a
purchase, so the source of money is the trader and the backing of money is the buyer’s
pledge to accept it for equivalent value in free exchange’. He said that simple barter, which
is a bilateral transaction where both traders receive immediate satisfaction, gives way to
money exchange, which is a unilateral transaction. 6
In a formal economy, where money is used, it is created in three ways: by commercial
banks (discussed in Chapter 1); by governments (also covered in Chapter 1); and by groups
of citizens. It is to the latter that I look in Part 2 of this book.
Definition of Money
Most economics textbooks define money by its function, but I prefer to define it by what it