By: Josh Mineni
The Three Uses of Money
Money is anything that is used as a medium of exchange, and holds monetary value. Money as a medium exchange is used to determine value during the exchange of goods and services. Without money, we would have to use barter, or the direct exchange of one service for another to get goods and services. Bartering is still used mainly in third world countries like Africa, Asia, and Latin America, but is also used sometimes in America. If we only used bartering, it would make acquiring goods way more time consuming. Money as a Unit of Account means that money holds a means for comparing the value of goods and services. Money as a Store of Value means that no matter how long you hold on to money, it will always have the same value, most of the time at least. There is an exception, if the United States were to experience a time of inflation or the economy was not doing too well, those that held on to money would have something that is valuable.
The Six Characteristics of Money
The first characteristic of money is it’s durability, meaning that money can withstand wear and tear, but after it has been used too much and begins to fall apart, it loses its value. So in reality it may not be extremely durable, but in comparison to prior methods of currency like wheat or oil, it lasts for much longer. The second characteristic of money is its portability. Paper bills and coins are small and light, and with wallets it is even easier to transport money. The third characteristic of money is its divisibility. Money is easily divided into smaller denominations, and people can use only as much is necessary for a transaction. Uniformity is the fourth characteristic of money, meaning that it is easy to count and measure accurately. Limited supply in money means that there is not an infinite amount of money, and not everyone can just go pick money off of trees. The last characteristic of money is its acceptability. Money is the the most widely used currency across America and it is accepted anywhere you go, not like bitcoin or other currencies, which may not be accepted everywhere.
Sources of Money’s Value
Even though money has many characteristics and is very convenient, bills and coins do not hold much value in and of themselves. So the things that give money the value that it holds is the commodity money. Cows, precious stones, and other desirable goods can be bought with money, but the value of the goods are worth more than the value of the paper bills or coins. Representative money is not physical money, but someone doing something for you to pay off a debt they owe you, and that task has to be valuable enough to you to make up for no money. Money in the United States nowadays is Fiat Money. Fiat Money is also known as legal tender and the meaning of it is that money really only holds value because the government says so. Tomorrow the government can declare that sticks of gum are the new accepted currency and the bills and coins you’ve been saving would hold no more value. Money makes the world go round, you would not be able to live without a monetary system. There are homeless people that have little money, but they use what they have to buy essentials like food and water, and most of them use it for other things, but too much use of that other stuff and they won’t be around for long.
