Mankiw discusses money, which is fundamental in creating an allocatively efficient economy. The three purposes of money are the following: provide a medium of exchange (an item that buyers give to sellers when they want to purchase goods + services), a unit of account (the yardstick people use to post prices and record debts), and a store of value (an item that people can use to transfer purchasing power from the present to the future); stocks and bonds are other examples of stores of value. There are two kinds of money, commodity and fiat. Commodity money refers to money that has intrinsic value even if not decreed by the government, while fiat money is money w/o intrinsic value. Mankiw then told an example in Iraq where "swiss dinars" were used over government decreed "Saddam dinars" (fiat money) perhaps due to social convention and expectations.
The difference between wealth and money is often not differentiated in modern terms, so it is important to note that wealth refers to all stores of value (money+nonmonetary assets). I thought this chapter was pretty straightforward; there was just a lot of terminology. The fact that peacock feathers and cigarettes was interesting and strange, and it made me wonder about our current economy (how I never thought it was weird to accept and pay for goods and services in paper; and that Mankiw saw this was 'rare', but I wish he would expand on this. I'm pretty sure other economies run the same way, or does he mean rare historically?). It was also interesting to know that the average American should have about 3,272 in their pockets which is sadly, for me, not the case. The plausible explanations are: much of currency is held abroad and much of the currency is held by drug dealers, tax evaders, and other criminals (and thus not sitting in the bank).
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