What is Money

Posted on May 22, 2009 | What at mybiginfo.com | What is Money | | View all What | |

Money is anything that is generally accepted as payment for goods and services and repayment of debts. The main uses of money are as a medium of exchange, a unit of account, and a store of value. Some authors explicitly require money to be a standard of deferred payment. The dominant form of money is currency.

Money!

Money is a good that acts as a medium of exchange in transactions. Classically it is said that money acts as a unit of account, a store of value, and a medium of exchange. Most authors find that the first two are nonessential properties that follow from the third. In fact, other goods are often better than money at being intertemporal stores of value, since most monies degrade in value over time through inflation or the overthrow of governments.

The word “money” is believed to originate from a temple of Hera, located on Capitoline, one of Rome’s seven hills. In the ancient world Hera was often associated with money. The temple of Juno Moneta at Rome was the place where the mint of Ancient Rome was located. The name “Juno” may derive from the Etruscan goddess Uni (which means “the one”, “unique”, “unit”, “union”, “united”) and “Moneta” either from the Latin word “monere” (remind, warn, or instruct) or the Greek word “moneres” (alone, unique).

Economic characteristics

Money is generally considered to have the following characteristics, which are summed up in a rhyme found in older economics textbooks: “Money is a matter of functions four, a medium, a measure, a standard, a store.” That is, money functions as a medium of exchange, a unit of account, a standard of deferred payment, and a store of value.

Money is a medium of Exchange

There have been many historical arguments regarding the combination of money’s functions, some arguing that they need more separation and that a single unit is insufficient to deal with them all. One of these arguments is that the role of money as a medium of exchange is in conflict with its role as a store of value: its role as a store of value requires holding it without spending, whereas its role as a medium of exchange requires it to circulate.[8] Others argue that storing of value is just deferral of the exchange, but does not diminish the fact that money is a medium of exchange that can be transported both across space and time. ‘Financial capital’ is a more general and inclusive term for all liquid instruments, whether or not they are a uniformly recognized tender.

Medium of exchange

Money is used as an intermediary for trade, in order to avoid the inefficiencies of a barter system, which are sometimes referred to as the ‘double coincidence of wants problem’. Such usage is termed a medium of exchange.

Unit of account

A unit of account is a standard numerical unit of measurement of the market value of goods, services, and other transactions. Also known as a “measure” or “standard” of relative worth and deferred payment, a unit of account is a necessary prerequisite for the formulation of commercial agreements that involve debt.

* Divisible into small units without destroying their value; precious metals can be coined from bars, or melted down into bars again.
* Fungible: that is, one unit or piece must be perceived as equivalent to any other, which is why diamonds, works of art or real estate are not suitable as money.
* A specific weight, or measure, or size to be verifiably countable. For instance, coins are often made with ridges around the edges, so that any removal of material from the coin (lowering its commodity value) will be easy to detect.

Store of value

To act as a store of value, a commodity, a form of money, or financial capital must be able to be reliably saved, stored, and retrieved — and be predictably useful when it is so retrieved. Fiat currency like paper or electronic money no longer backed by gold in most countries is not considered by some economists to be a store of value.

History of Money

The use of barter-like methods may date back to at least 100,000 years ago, though there is no evidence of a society or economy that relied primarily on barter. Instead, non-monetary societies operated largely along the principles of gift economics. When barter did occur, it was usually between either complete strangers or would-be enemies.Trading in red ochre is attested in Swaziland, shell jewellery in the form of strung beads also dates back to this period, and had the basic attributes needed of commodity money. To organize production and to distribute goods and services among their populations before market economies existed, people relied on tradition, top-down command, or community cooperation.

The shekel was an ancient unit of weight and currency. The first usage of the term came from Mesopotamia circa 3000 BC. and referred to a specific mass of barley which related other values in a metric such as silver, bronze, copper etc. A barley/shekel was originally both a unit of currency and a unit of weight.
A 640 BCE one-third stater electrum coin from Lydia, shown larger.

According to Herodotus, and most modern scholars, the Lydians were the first people to introduce the use of gold and silver coin. It is thought that these first stamped coins were minted around 650–600 BC. A stater coin was made in the stater (trite) denomination. To complement the stater, fractions were made: the trite (third), the hekte (sixth), and so forth in lower denominations.

The first banknotes were used in China in the 7th century, and the first in Europe issued by Stockholms Banco in 1661.In the Western world, a prevalent term for coin-money has been specie, stemming from Latin in specie “in kind”.

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