Why Money?

The answer to the question I posed in my last post came relatively
easily, but I had a realization that economics is a much more
complicated subject than you might think, so my simple approaches
could well be flawed, so opposing views are welcome.

The Exchange Rate:

Just printing money does not work for a small country like New Zealand because
you have to consider that most of our output is exported.

For instance you could think of us exporting 500 bales of wool for one Honda car. 
Maybe the Japanese like carpets sometimes?

Even  if we gave everyone say, $10,000 each, the populace would rip on
out and buy themselves the TVs and cars and so on. The problem with this is that this
money is not backed up by some farmer magically producing way more bales of wool
than he has been doing.

In New Zealand at this the moment it is not "printed money", but "borrowed money",
which might make it all OK, except interest has to be paid sometime.

A Simple Economy:

So why do we have this thing called money?

Consider a very small economy for simplicity.

1. We have Dan, who farms wheat and mills it, producing bags of flour.
2. We have Fred, who bakes bread.  Fred needs Dan's flour, and Dan needs Fred's bread.
3. In this situation they could each barter with each other, so no need for money.

The complication comes if we include a third person, Veronica, who makes candles.
She could trade candles for bread, but would have no use for the flour.

Invention of money! Problem solved.

The Invention of Money:

Dan, Fred and Veronica could just get together and issue enough money to keep
their little economy turning over. They could decide that $1000 each should do the trick.
If a loaf of bread is say $1 and a bag of flour is $1 and a candle is $1, you can see that
that Veronica might say to herself,

"Yay, lets have a long holiday.....hmmm what is my stock of candles....hmmmm ok 2!"

One trade later, she is out of candles and does she care? No. The trouble is Dan and
Fred will turn up at her door next week and want to buy some more candles,
and they will be understandably grumpy when she tells them she is out of stock.

So, even on a very simple basis, society breaks down.

An answer to this problem might be to not make the initial handout very big, just
keep it small enough to encourage people to keep on working.
For a society to function it needs all it's plumbers, dentists and so on to
keep on working.