LESSON ONE
MONEY
Grammar: Active Voice.
MONEY is perhaps the most basic building-block in economics. It helps states collect taxes to fund public goods. It allows producers to specialise and reap gains from trade. Money fulfils three main functions. First, it must be a medium of exchange, easily traded for goods and services. Second, it must be a store of value, so that it can be saved and used for consumption in the future. Third, it must be a unit of account, a useful measuring-stick. Lots of things can do these jobs. Tea, salt and cattle have all been used as money. In Britain’s prisons, inmates currently favour shower-gel capsules or rosary beads. The use of money stretches back millennia. Electrum, an alloy of gold and silver, was used to make coins in Lydia (now western Turkey) in around 650BC. The first paper money circulated in China in around 1000AD. The Aztecs used cocoa beans as cash until the 12th century. The puzzle is how people agreed what to use.
Money evolves to reduce barter costs, with some things working better than others. The commodity used as money should not lose value when it is bought and sold. So clothes are not suitable to be money, since no one places the same value on second-hand clothes as new ones. Instead, something that is portable, durable (fruit and vegetables are out) and divisible into smaller pieces is needed. Spices and shells are highly saleable, explaining their use as money. Government plays no role here. The origin of money is a market-led response to barter costs, in which the best money is that which minimizes the costs of trade.
But the story just doesn’t match the facts in most monetary economies, according to a 1998 paper** by Charles Goodhart of the London School of Economics. Take the widespread use of precious metals as money. One would say that this happens because metals are durable, divisible and portable: that makes them an ideal medium of exchange. But it is incredibly hard to value raw metals, Mr Goodhart argued, so the cost of using them in trade is high. It is much easier to assess the value of a bag of salt or a cow than a lump of metal. This problem explains why metal money has circulated not in lumps but as coins, with a regulated amount of metal in each coin. But history shows that minting developed not as a private-sector attempt to minimize the costs of trading, but as a government operation. It was state intervention, not the private market, that made metal specie work as money.
Once money exists, income and expenditure can be measured. That means they can be taxed. And the public purse gets a second boost from seigniorage, the difference between the value of the coins and the cost of producing them. On this account, governments impose taxes payable only in money, creating a demand for money that means it will be widely accepted as payment for goods. The state forces the economy away from barter for its own fiscal purposes.
The evidence suggests that only “informal” money can spring up purely privately. But informal money can exist on the grandest scale. The dollar’s position as the world’s reserve currency is not mandated by any government, for example. Its pre-eminence outside America rests on it being the best option for international transactions. Once a competitor currency becomes preferable, firms and other governments will move on. The good news for the dollar is that the Chinese yuan is not yet widely accepted and suffers from higher inflation, reducing its usefulness. But a shift in the world’s reserve currency could be swifter than many assume. The dollar’s other competitor, the euro, has deeper problems. Its origins were not private. Nor is it proper Cartalist money, backed by a nation state. This means it lacks a foundation in the power of either the market or the state.
COMPREHENSION
1.What is the main building block in the economy of the country?
a) taxes;
b) money;
c) trade;
d) products;
2. What function doesn’t belong to money?
a)a medium of exchange;
b) a unit of account;
c) a store of value;
d) a unit of consumption.
3. How did metal money appear?
a) as a private sector attempt to minimize costs of trading;
b) as a government intervention;
c) as a result of the barter;
d) as a result of international transaction.
4. What do governments need money for?
a) To measure income and expenditure;
b) To make people obey them;
c) To discuss future prospects;
d) To use it in a barter.
5.What is the main dollar competitor?
a) euro
b) Swiss frank
c) yuan
d) yen
Exercise 1
Find English equivalents in the text:
Собирать налоги;
пожинать плоды;
средство обмена;
сбережения;
доходы и расходы;
расчетная единица;
эмиссионный доход;
потребление;
превосходство.
Grammar Revision:
Exercise 2
Choose the correct variant.
1. will use 2. uses 3. have used 4. used
5. had used 6. are using 7. were using 8. would use
1. Партнеры договорились, что будут использовать в расчетах рубли.
2.Они сейчас используют в расчетах доллары, но это временно.
3. Фирма обещает, что со следующего года будет использовать евро.
4. Когда мы начали с ними работать, они использовали доллары.
5. Они дважды использовали евро в своих контрактах в этом году.
Exercise 3