What Is Money?
What Is Money?
Money is an abstract object used as a means of exchange in any society. Money may be defined as any verifiable account or asset which is normally accepted as payment for products and services and repayment of liabilities, including interest, in a specific country or social context. The money supply can be influenced by two main factors: changes in the level of demand for particular goods and payments in respect of these goods and payments, and changes in the level of supply of money. Money is generally issued under the authority of a government or central bank.
Money, like all other goods and services, is a commodity in demand because people need it to enjoy certain advantages which are attached to having it. In simple terms, money is the central general good. In this economic milieu, money is regarded as a medium of exchange because without it there cannot be an exchange of goods and services. This is what describes the concept of money as a medium of exchange. It is not, however, an example of a free resource since money is not generally a free resource.
Money is commonly defined as a commodity and is generally accepted as legal tender in payment of taxes. In this country, the general acceptability of money is perhaps one of the features that distinguish it from other commodities. Unlike most other commodities, money is generally accepted as a medium of exchange because it is a readily transferable form of wealth. It is transferred through trade, which in modern parlance is usually understood to be the act of buying and selling of goods. Money, therefore, is generally accepted as a medium of exchange since it facilitates the process of transaction.
Money, like all other commodities, is a medium of exchange only if it is a widely transferable form of wealth. In practice, however, money is generally not regarded as a medium of exchange in the conventional sense. Money is generally not accepted as a medium of exchange in the conventional sense because it is normally not a tangible object that can be physically stored at any time. Unlike most other commodities, money, because it can be physically held and touched, tends to lose its value with time. Consequently, money loses its value with the passing years and loses its utility.
The lack of a physical medium of exchange is what generally characterizes money as a commodity money. Commodity money is money as a commodity and is typically a basket of unit values redeemable for other commodity money. For example, one may purchase food through a cashier at a grocery store. The money will be a basket of unit values redeemable for food. Such is the function of money as a commodity money.
Money has the function of serving the social purposes of all civilized societies. Money serves the social purposes of all civilized societies because all civilized societies have rules by which the distribution of money among different individuals and groups is guided. This distribution of money is guided by the operation of the law of supply and demand. The distribution of money is subject to the operation of the marketplace and to the changing circumstances of the marketplace.
In the marketplace, money is a creature of the law of demand and supply. Inflation causes the value of money to depreciate, just as depreciating value of all other commodities makes money depreciationary. In times of inflation, money is a medium of exchange in the market, just as gold and silver and other metals are commonly used as a medium of exchange in the market. Money, being a medium of exchange, facilitates trade and facilitates the transfer of goods from one person to another. Money facilitates trade because it is a common good that is accepted as payment in exchange for other goods.
On the other hand, money is not a medium of exchange in the marketplace. It is a commodity that must be bought and sold as the case may be. Money does not play the role of a medium of exchange in the market. Rather, money facilitates the transfer of goods as a commodity, just as silver coins are the mediums of exchange in the market for agricultural products. If money were a medium of exchange in the market, then silver coins would be bought and sold as commodities as well.