To explain it with a formal definition Money is :

Anything that is accepted as a way of exchange to buy products and services

The basics mechanics of the whole monetray system are invisible. Many individuals take money for granted when they are spending it. So when you walk in a restaurant, shop or anywhere. Whatever it is, these pieces of paper along them can assist them anywhere. So why on earth are some green pieces of paper able to get you what you want . Why would a shop keeper  be willing to give you a piece of the tasty donuts it had made with all the resources and handwork put in it for some few pieces of paper ? Sounds absurd. But the answer to these questions is what MONEY really is :

A means of Payment

A store of Value

A unit of Account

Money as Means of Payment or Medium of Exchange

These piece of papers play a vital role in working with the market economy. The mere thought of its absence makes you feel what alternative can you use to have what you want . Well yes ! there was an alternative to a monetary economy which was called the BARTER SYSTEM.

Barter System is a system where people exchanges good and service to acquire other goods and services.

In this system, you have to find someone who can give you the products that you want. And that someone must be willing to trade for the goods that you have. For example if you want flour and egg, You have to find someone who is willing to buy the meat and vegetables you are willing to trade for. So there needs to be a double coincidence of wants to make the trade possible.

In a dynamic and complex society with so many products and goods, barter system requires a tireless effort. This effort is simply eliminated by having a kind of medium of exchange where you do not have to worry about finding someone willing to trade for. In a monetary system, Money is that medium of exchange which works as the means of payments for the products you require. This is the element that performs the function of the market economy.

Medium of Exchange : What sellers and buyers generally accept for the good and service they buy or sell

A Store of Value

Among other roles of money , economist also consider Money as store of Value. For example if you raise alot of cats and sell them more than the immediate amount you want to consume. Than you can keep that money until the time you want to use it again. Thus , the value of those kittens is stores in the shape of Money that can be used. What benefits you as a store of value of Money is such that you can keep the surplus amount to buy more products in future. There are many other reasons that money is considered to b more feasible than a barter system.

  1. Money is Portable. 
  2. You are not trading or compromising any of your other good to buy another.

This also brings you to the notion that Money is more liquid form of transaction. Thus,

Liquidity property of money: The property of money that makes it a store of value an medium of exchange because it is portable and easily traded for other goods”

Disadvantage of Store of Value of Money

One of the main disadvantage of store of value of Money is that its VALUE falls with the passage of time when the prices of goods and services rise. Thus, the products you are able to buy before cannot be bought at the same price in future. In such a case it is better to utilize that store of value instead of keeping and lowering it value even more.

Unit of Account

Among other roles of Money – It is also a Unit of Account – a method of quoting prices. And these are quoted in monetary units. in other words, Money is a standard Unit of account which provides quoted prices to all products showing their worth in the economy. A book cost $90 and an orange cost $2. Infact, what else would you quote a product with except for money ?

Share This