Money and Finance: Crash Course Economics #11

Money and Finance: Crash Course Economics #11

Adriene: Welcome to Crash Course: Economics. I’m Adriene Hill. Jacob: And I’m Jacob Clifford. And today we’re going to talk about money and finance. Adriene: I know we said in the first episode that economics isn’t really about money… Jacob: Economics isn’t about getting rich quick, but it all boils down to trading things you have for the things you want. Adriene: Like, I’ve got this giant zucchini, but I’d love that piece of pizza. Want to trade? Jacob: No way! [Theme Music] Imagine you live in a world without money, and you’re a dentist that wants to go buy a car. First you need to find a bunch of auto workers who need dental work. And if these workers don’t want dental services and prefer being paid in something else like flat-screen TV’s, then you have to find TV manufacturers that have toothaches. Try posting that on Craigslist… This is called the “barter system”, and it takes a lot of time and energy. Of course, many people still barter for stuff, but for most transactions, we use money. Which is a way more efficient way to do business. The people who really need dental care will pay you with money, which you can now use to buy a car. Economists point out that money serves three main purposes. First, it acts as a “medium of exchange”. It’s generally accepted for payment for goods and services. Now, that medium of exchange means we’re not stuck in the barter system. Next, money can be used as a “store of value”. The reason why a dentist doesn’t normally accept fruit or baked goods is because you can’t save those things up to go buy things like cars. Plus, bananas go bad pretty quickly in a safe deposit box. Money also serves as a “unit of account”. We don’t measure the value of cars in bananas, muffins, or root canals. Instead, we use money because it’s a standardized metric that allows us to measure the relative value of things. Adriene: Most people assume that money is just cash and coins, issued and endorsed by a government. Coins have been used for thousands of years, and they’re a great example of money, but technically money is anything that’s used as a medium of exchange. For example, cigarettes were used as money in prisons until smoking bans were put in place. Nowadays, prisoners use postage stamps and even small packages of mackerel as currency. Animals like cattle and sheep, also sacks of grain, all these have been used as money. Some societies even used feathers or shells. The indigenous people on Yap Island in the Pacific Ocean used money called “rai stones”. These were large doughnut-shaped disks made out of limestone. The largest ones are around ten feet wide, and weigh four tons. The point is what economists consider money is anything that’s accepted as a medium of exchange. And that’s changed a lot over time. Today, cash and coins are often used as money since they’re easy to carry around, physically durable, and hard to counterfeit. But a lot of money today doesn’t end up in anyone’s pocket, or wallet, or duffel bags, or even wheelbarrows. It moves around electronically. Increasingly, people get paid in the form of checks or direct deposits into their bank. A lot of our money isn’t physical. It’s digital. It exists on some bank’s computer. And as long as that computer is secure, and the zombie apocalypse doesn’t permanently knock out the power, and your nation’s monetary system is functioning as it should, those electronic dollars do all the things they’re supposed to do. Another form of digital money that you often hear about is Bitcoin. Bitcoin is a virtual currency that is not issued or regulated by a specific country. But since some people accept it as payment, many economists consider it money. Unlike other electronic currency, Bitcoin doesn’t involve a bank, so people can, in theory, buy things more anonymously. This appeals to people who don’t trust central banks, and also people who want to buy illegal stuff online. That illegal trade means law enforcement and regulators are also very interested in Bitcoin. Bitcoin isn’t only for internet drug deals though. There’s a lot of speculation in Bitcoin, meaning people buy up Bitcoins, hoping to turn a profit on them. This makes Bitcoin more of a speculative asset, and limits its use in buying and selling actual goods and services. Could Bitcoin or another virtual currency be how everyone pays for things in the future? Who knows! But if anyone wants to give me 10 Bitcoin for this zucchini, we’ve got a deal. Jacob: There’s kind of a glaring question here: what makes these pieces of paper so valuable? Well, in the past, each dollar issued by the U.S. government was redeemable for a specific amount of gold. That was called the “gold standard”, and it meant that the government couldn’t issue more money than it had in gold reserves. Back in the 1930’s, the U.S. decided to move off the gold standard and some people freaked out about not having something tangible to back our money. But it’s important to remember that money, whether it’s cash, or gold, or small pouches of mackerel, is all about confidence. The Nobel Prize winning economist Milton Friedman said, “The pieces of green paper have value because everyone thinks they have value.” With that in mind, a gold standard, or even a mackerel standard, might not make money more valuable or reliable. A lot of economists agree with this, which is why no country uses the gold standard. There are calls by some politicians to bring it back, but that’s probably never gonna happen. Sorry, Ron Paul. Adriene: Okay, I know we said economics is not about the stock market. But now it’s time to explain what it is, and why it’s important. The stock market is just one piece of something much bigger: the financial system. To understand the financial system, you need to picture two different groups. First, you have “lenders”. Sometimes these are corporations with a bunch of cash, but lenders can also be ordinary households, people like you and me. Us regular folks are gonna need money in the future to retire, or send our kids to college, or go on a vacation to Yap Island. So we need a way to turn the money we have now into more money in the future. The second group is “borrowers”. There are several different kinds of borrowers. First you have other households who want to borrow money to buy stuff like a car or a house. You also have businesses that have a great idea for a new product, but that have a problem. They need money to make the product, and they’ll have money when the finished products are sold. But for now, they need to borrow money to invest in capital – things like machinery, tools, and factories. And they’ll pay it back once they make some sales. Basically they need to buy stuff to produce other stuff. Third, you have governments who need to to borrow money because they’re spending more than they’re bringing in. So you have lenders who have money now and want to turn it into more money in the future. And you have borrowers who need money now and will repay it in the future. The financial system is a network of institutions, markets, and contracts that brings these two groups together. Lenders put money into the financial system, which loans it out to borrowers. These borrowers pay back those loans with interest, which makes it worth the lender’s time. Let’s go to the Thought Bubble. There are three ways this exchange takes place. The first is banks. A lender deposits money in a bank, and then the bank turns around and loans that money to a family who wants to buy a house or a business that wants to expand. As those borrowers pay the interest on their loans, the bank takes part of that money to cover their costs and passes the rest along to the depositor. The second way lenders an borrowers link up is through the “bond market”. A government or large corporation that needs to borrow money will sell bonds to lenders. A bond is basically an IOU in which the borrower agrees to pay regular interest payments and promises to repay all of the money back at a set date in the future. If that lender decides they’d rather have cash now, they’re free to sell that bond to another party. The third way lenders and borrowers link up is through – you guessed it – the stock market. Say Jacob and I want to expand our lemonade business, but we don’t have the money to do it. We could sell stock, which is basically slices of ownership in the company. Households get the stock, and we get the cash. If our company profits in the future, and we become lemonade moguls, we’ll share some of those profits with the shareholders, or the shareholders can sell the stock at a higher price. Either way, they make money if the company’s profitable. Thanks, Thought Bubble! So banks and bonds have something in common. They’re dealing in something called “debt”. If you get a loan from a bank, or if you’re a government that sells a bond, the amount you must repay is set. In almost all cases, you’re obligated to pay back the amount you borrowed with a set amount of interest. Stocks, on the other hand, are known as equity. If a company enjoys high profits,
shareholders get more money. If a company goes bankrupt, shareholders may get nothing. In the news, you’ll hear about changes in the Dow Jones Industrial Average. But fluctuations in stock markets are not reliable indicators of how the economy’s doing. Often changes in the stock market are reactions to real, or just perceived, changes in economic fundamentals like consumer confidence, the unemployment rate, and GDP growth. Bonds and stocks also have something in common. They’re traded on markets for financial instruments. Bonds are debt instruments, and stocks are equity instruments, but they’re both pieces of paper that are traded on markets with many buyers and sellers. Banks, on the other hand, are financial institutions. With the help of the FDIC, they safeguard our money while making loans to individual households and businesses. Jacob: So why do we even need this complicated financial system? Why don’t households take their savings and lend them out directly? Well, if you want to loan out your life savings to your neighbor so he can launch his artisanal smart phone business, go for it! But that’s a pretty risky bet, so you’re more likely to use a financial system. Financial markets, with instruments like stocks and bonds, allow borrowers to crowd source the money they need to borrow. They raise their capital from lots of investors and
spread the risk around. Banks do the same thing. They accumulate small deposits from thousands of people and use that to make loans. It’s like Kickstarter except better because you get money as opposed to an earnest thank you email. From the lender’s point of view, a financial system allows you to spread your savings over dozens or hundreds of different loans. A few companies might go bankrupt and a few people might pay back their car loans, but those losses will be offset by borrowers who do pay back their loans. You don’t have to put all your eggs in one basket. Adriene: So that’s money in the financial system. The thing to remember here is that this stuff is not just an abstraction or someone else’s concern. Almost all of us are lenders and borrowers at some point in our lives, and understanding lending and borrowing is a big deal. While it might seem like you’re borrowing from a faceless institution, you might be borrowing my money from that faceless institution, and I’m gonna need that back if I can’t get anyone to accept this zucchini as payment. Thanks for watching! Jacob: Crash Course Economics was made with the help of all these nice people who believe in some way that there’s value in those green pieces of paper. Your green piece of paper can help support Crash Course on Patreon. You can help keep Crash Course free for everyone, forever. And you get good rewards. Thanks for watching! DFTBA!


  1. Cletus Abbot III says:

    Ron Paul 2020!

  2. Jasmine Lav. says:

    Wow did that Bitcoin skit age weird.

  3. Jeremiah Dalton says:

    Would've been great to have seen this before Bitcoin peaked. ?

  4. Vladimir Tchuiev says:

    If she actually sold the zucchini with 10 bitcoins she would have been filthy rich by now, 140k USD filthy rich.

  5. Deron FerrellTV says:

    i was confused 40 sec in

  6. I Should Know This says:

    I like that you made this so easy to understand and process, thank you!

  7. Shaira Vista says:

    Please create an accounting playlist. Thank youuu

  8. EndlessZoro says:

    @CrashCourse I keep getting the advertise of a company called mobilink-coin whenever I watch your econ videos, I did some research on it because it looks like a pretty good deal but it turns out it is a SCAM! I tried to report their videos to youtube, report their ads to AdSense and I have no idea what else I can do, the advertisement keeps coming up and everytime I check and they have more and more subscribers, people are buying it and I feel so useless, I try to warn ppl on their channel but they just delete my comments. Can you help in any way?! There are probably lots of people seeing it because of this series! I almost fell on their trap myself!

  9. Road to the 2 Comma Club says:

    It's weird whenever I comment on one of these finance videos I get a bunch of new subscribers.. but I'm happy to help people make money so I'm not complaining! :-p

  10. A one legged man says:

    crypto currencies will soon take over

  11. Young Somali Entrepreneurs says:


  12. Matt Udewitz says:

    Corporations also sell bonds

  13. Sebastian Saenz says:

    the BTC part of this video aged well

  14. Elijah O'Dell says:

    Who else saw the bag of ruffles

  15. Albert Zeliang says:

    Use paytm

  16. Fredtality says:

    Crash Course on Bitcoin in 2015? Should have taken notes before the surge…

  17. kurrentlyaware says:

    So cool to see them talk about bitcoin years later!…ha! Hopefully you guys bought in 2015! Thanks crash course for your awesome videos!

  18. Nurudeen Abdul-Karim says:

    Hurray! I saw my country's currency – Ghana cedis

  19. Tony Abbott says:

    We went OFF the gold standard in 1971 not 1930s. .

  20. lele elvis says:

    Mr Clifford!!! I love this guy!!!???

  21. Richard Hatfield says:

    Unfortunately, this missed a couple of key facts about money. There are three types Currency (cash), Bank reserves (controlled by central bank – FED or BoE) – consumers never see this and finally, Commercial Bank created Money when it lends. (See BoE, and search for "Money creation in the modern economy"). The latter tends to cause the problems in the financial system when it gets out of hand. It also means that the central bank does not have full control on the quantity of money. Banks do perform an intermediary role, however, they do also create and destroy bank money (create when a loan is created, swipe your credit card! and destroy when loan is repaid, pay your credit card bill from deposited money).

  22. John 117 says:

    Corrupted minds get the zuchinni joke…

  23. Q Prince2018 says:

    I hate digital.! Keep the cash flowing please.!!

  24. Serenity Project says:

    I'd would do "THINGS" for that pizza at the start of the video

  25. Serenity Project says:

    I disliked barbecue zombie

  26. Isabella says:

    Has anyone noticed Mr. Clifford doesn't blink much.

  27. Zara Yap says:

    The giant pizza and zucchini is truly distractive ??

  28. Pradyumn Vashishtha says:

    10 bitcoin =
    63k usd

  29. Mr Me says:

    When she looked at the zukini tho

  30. Ferreyra FV says:

    Jacob became the money-face in my head ??

  31. Michael Ralby says:

    Yes! Great job.

  32. R Nur says:

    I want to know the fool that paid 10bitcoins for the zucchini

  33. I. Umarov says:

    10 bitcoins for that stupid zucchini? LOL

  34. Brian says:

    Hey where's that guy who did a recap of the key ideas in the comment section under all episodes so far..? 🙁

  35. Fergal Downes says:

    Heyo buddy, pretty good vid that you have here. Thanks.

  36. Jam Likes says:

    Crash course accounting when

  37. special one says:

    i wish that my economic teacher also have acdc belt put on

  38. James Mac777 says:

    The famous, 20th century, philosopher Joseph Campbell said money is congealed energy. We place a spiritual (mental) value in it, and at the root of the U.S. economy is energy. Our entire economy is based upon faith, that is believing that the energy in a dollar bill will do something for us: This is like money is a god and we believe in it; hence, "In God We Trust" on our U.S. money. This also has a implication that money is debt, where we are owed something, and rich people accumulate debt and this is different from actual value like real property.

  39. timarln says:

    So fun to watch in 2018 especially, because of the price for a one Bitcoin)

  40. Jean-Félix Laflamme says:

    that zuchini is defenetivly not worth 10 bitcoin :'D

  41. Jonathan Dee says:

    Listen you crustaceous cheapskate! Squidward's been living at my house driving me crazy! And you're not gonna hire him back all because of a stupid dime?!

  42. yassin farid says:


  43. raphael feliz says:

    6:38 cover their costs AND PROFIT

  44. Kimberly Gutierrez says:

    PLEASE start a Finance Crash Course.

  45. FesliyanStudios Background Music says:

    Everyone look at the video at 2:06 … there's a bag of Ruffle chips on the ground. WHY?! rofl

  46. Kathryn Fong says:

    Awesome for everyone to understand what they already do on a regular basis!

  47. Super Cooper Gaming says:

    Doing this for economics class, I'm so gonna fail

  48. Nelson Swanberg says:

    Money is just a convenient system of barter exchange accounting.

    When you buy crypto who exactly gets your money?

    “Don’t worry Tommy my boy. As long as we Americans can buy ale with it paper money will work out just fine.” – Ben Franklin

    Invest in assets or capital??

    Earnings belong to the shareholders?? haha

  49. Jash Villadares says:

    More like CASH course

  50. ArtGames says:

    Hi I'm Adrienne in hell

  51. Pragna Sanyal says:

    if a layman listens to this they would miss out words like speculation whose literally meaning gives rise to an entire theory

  52. Brendan Lea says:

    I appreciate the service you are performing for others with your videos. Thank you! Please keep it up.

  53. Eugen says:

    I would say money is actually a store of value more than a medium of exchange.

  54. Austin Silvan says:

    That pizza looked yummy!

  55. Ch3ls3yxxSubs says:

    Giant Zucchini, isn't that called a Marrow?

  56. Doha Walid says:

    I have been trying to understand a chapter on money and banking for almost 2 days and i couldnt get anywhere. Thank you crasg course for finally making me get a hold in this

  57. H-H Videos says:

    Giant zucchini must be really useful with the pleasure perposes and now that lady needs pizza to do with hahaha

  58. thearrowbro says:

    In prison ramen packets are also used as currency

  59. Laurence Rosenthal Winckler says:

    wtf is this belt buckle hahaha

  60. Calvin Ebun-Amu says:

    Your statements on bitcoin don’t apply to many regions in Africa and MiddleEast

  61. ray1983able says:

    Barter System , Unit of account , $ = Medium of exchange , Lenders , Borrowers , Capital , Financial System brings it all together , Equity ,

  62. tay's got crown says:

    Can someone explain me stock market??? PLEASE

  63. Just-A-Cactus says:

    I'll take that zukini for 19 bitcoin

  64. AB Taco says:

    Thanks for featuring the Ghana cedi guys. That’s awesome

  65. Matthias Gray says:

    Skirting around the issue…Money = Debt

  66. Thaddeus Ang says:

    2:07 dem Ruffles dou

  67. Jonathan Hughes says:

    The world will not crash when ask and receive is used. People need to be disguised with money. Money came from Satan's prison not God's mind. Kill – annihilate money. It is a destructive beast that is addictive.

  68. J.S. Ward says:

    As long as your nation's monetary policy is functioning as it should (shows European Central Bank.)

  69. king talha says:

    Thank you Crash Course. Love the way you people explain. ♥️

  70. The LOL Minecrafter says:

    They're not pieces of paper. They're technically pieces of interwoven fibers. Helps make it harder to create accurate counterfeits.

  71. soumil Saluja says:


  72. christopher hall says:

    I caught that bag of Ruffles Chips. lol

  73. Sung-Soo Devine says:

    why is there a bag of ruffels on the picture of yap island? 2:09

  74. NekoEijirouKirishima Yeet says:

    boi, ten bitcoin for a zucchini?! that was $2571.40 at the time!

  75. Eric Northman says:

    very great teaching. but I always think the male speaks too quick and vague to understand

  76. Parker Hilliker says:

    I hope someone bought your 10 BTC zucchini and is now crying over it

  77. Phill says:

    Not taken into account. The favour system.

  78. Abderrahim Abdellaoui says:

    thank you so much

  79. Chin Music says:


  80. TheRealConservative says:

    I’m pretty sure we moved off the gold standard in the 70’s under Nixon instead of the 30’s

  81. Nisarg Jain says:

    Should have actually taken 10 bitcoins for a zucchini…..

  82. THE GAMER says:

    Why is he flexing

  83. Tom McMorrow says:

    I hold my degree in finance with highest honors. Why am I watching this?

    Oh right. Cuz I'm unemployed. :-p

  84. Andrew Russell says:

    Y’all know what’s up with the zucchini

  85. Umar Khayaz says:

    Am I the only one who yet even don't know about DFTBA??

  86. Jesse Mills says:

    I'm sorry did anyone else on here see the Ria Stone and immediately think of Mr. Krabs' dime

  87. James Hackett says:

    Guy talking on 9:04 talked WAY too fast and it seemed like many parts of his narration was cut out and sounded jumpy which made the most important part of this course segment confusing to understand.

  88. Navaid Syed says:

    Return of gold standard requires just one big currency crash which is not so far fetched keeping in mind the exponentially rising government debts.

  89. Luke Whiteside says:

    did she really just ask for $95499.80 in bitcoin for that zucchini?

  90. Zekromz1 says:

    So nobody is going to talk about his AC ⚡️DC belt???!

  91. Lee Boon Kong says:

    The problem of fiats or non-gold standards is representing scarce resources with a non-scare resource (Of course other scare resources such as petrol or electric energy can be used)

  92. pookahchu says:

    That is quite an amazing zucchini.

  93. samm thakur says:

    Learn for knowledge not for exams or homework.

  94. Crimson Kng says:

    What did she end up doing with that zucchini?

  95. Crimson Kng says:

    3:30. Drug deals? do you realize that it's the government's prohibition on recreational drugs that creates the problem in the first place? it's time for all governments to end the myopic ineffective counterproductive hypocritical racist and failed War on Drugs. Treat as a medical issue not a criminal issue. Incarceration is not the answer.

  96. Mikhail Panzo says:

    you know you're addicted to Monopoly when you already know the barter system without knowing the name

  97. Alexander Arnold says:

    Where Finacial "Markets" occur, andor "Financial Bazzars", the Public/"Reported"/"Told"/Written "Finance" aka "Monetary Policy", is sometimes planned around the "boom and bust" cycles of Banks and other "Financial Firms", similar to the "Rise and Fall" of "The Famous" sometimes "Glorified" by *media*, not truly Peaceful, and not truly Free, Press/News/Print/…

  98. Sara 98 says:

    Very well explained,thank you so much and keep up the good work !

  99. Ananya Goswami says:

    the guy looks like ross and monica's father lmao

  100. Zachary Sundstedt says:

    Jake Clifford is mark cuban

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