In today's article you will learn what money is.



In today's world we all use money on a day to day basis. Have you ever stopped to think what money in fact is?

- Money is a source of exchange

- It has a unit of account

Money is a source of exchange.

All throughout history there has been an exchange system in place. One example is Rome back in 550 B.C.E, salt was exchanged for goods.

Originally a conch shell, which is a marine mollusc with a large brightly coloured spiral, was used in exchange for goods.

Here is the point.

Any object can be used in exchange for goods. When this object is used to trade goods, it is a medium of exchange. When trust is built up in this object it leads it to become important and valued. It then becomes a "money system".

What about the object we use today?

As we have just said, salt was exchanged for goods; today we use coins and notes.

These coins and notes are recognised "objects" which are accepted in society and trusted.

This leads on to the second point.

Money is a unit of account.

What does this mean?

It is how the "object" is measured or valued- It is what it is worth.

For example, a car sales person wants to sell a second hand car. He puts a value on the car for £2000. A customer walks into the car show room and asks "how much". £2000 answers the sales man. This price has become the unit of account; it is valued or measured at that price.

In other cultures the unit of measurement may be a different object. For example if goats is the trusted "object" for the exchange, then instead of that motor car having a market value of £2000 it could be worth 100 goats!

- It is a store of value

- Money is not real

The third point is money must be a store of value.

The "object" must have a market value that can be stored for future use.

For example, a man who sells lap tops has in his possession one hundred lap tops which he can sell for future trade. This is beneficial for him because he has a store of market value, when he sells the lap tops he will add value to his business and himself.

Maybe you keep a cash box at home. The currency in the box holds market value and can be used in a future date. The currency is a store of value.

Is money real?

Here's the thing, money is not real. Why is this fact?

We have already discussed that money systems are only "objects" which are trusted and accepted.

If you lived in a culture where goats were the "object of exchange" would you view them as real money?

Money is the body of value. This value is decided within ourselves. For example, take two people.

One man loves the old silent movies the other man does not. They are both offered an original silent movie film. The film buff is so excited at the thought of owning this film he offers £1000 to buy it. The other man offers £10 because he does not hold any value to the item. See the difference; it comes down to internal value on an item.

If money was real they would have the same value.

Also read back to the first three questions, it mentions about the personal value on an object.

Copyright 2006 David Brown