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•60 The 100 Greatest Business Ideas of All Time

Idea 39 – How the total money supply is greater than the
total amount of money

‘Money is the root of all evil, and yet it is such a useful root that we cannot get on
without it any more than we can without potatoes.’

Louisa Alcott Brown (1832–88)

I once was the sales manager for a computer company, and managed to make a sale
to a Nigerian businessman. The sale was progressing rather smoothly, when I dis-
covered that he had answered my questions about having the resources to buy the
machine very widely. He had the resources, but not the money. I was eventually
paid, through an agent, with a shipload of cement. My problem was to get the
cement off my asset list before the month-end accounts were calculated and the
finance department became aware of what I had done. This one fling with barter
taught me not to do it again. Even babysitting credits went wrong when we got
involved. Business depends on money, but it is a very difficult concept to under-
stand.

The paradox in the title is at the root of the whole of commerce. Before coming
to it let us look at the economic purposes of money. In standard economic theory
money is said to have four distinct but interrelated functions:

1 To serve as a medium of exchange universally accepted in exchange for goods
or services.

2 To act as a measure of value, a common yardstick which makes the operation of
the price system possible and provides the basis for keeping records.

3 To serve as a standard of deferred payments, the unit in which loans are made
and future transactions fixed. Without money there could be no commonly
accepted basis for borrowing and lending and the concept of credit could not
play its huge role in the organisation and encouragement of business.