What Is Money?
Money serves three purposes:
it serves as a store of value
a unit of account
and
a medium of trade.
Here are some characteristics of money, as well as an example of how to use various forms of money.
Durability
portability
divisibility
uniformity
limited availability
and acceptableness are all
characteristics of currency.
Let's look at two examples of different types of money:
It's a donkey.
Cattle have been used as
currency at various times in history.
The value of one cow is represented by a stack of twenty-dollar bills in the United States.
Let's take a look at our list of qualities and see how they compare.
1. Durability.
A cow is reasonably
resilient, but a long ride to market puts the cow at risk of illness or death,
lowering its value.
Twenty-dollar bills are reasonably long-lasting and can be quickly replaced if they become damaged.
Much better, a long drive
to the store would not jeopardize the bill's health or worth.
2. Portability
The freedom to move about.
Although transporting the
cow to the store is difficult, putting the money in my pocket is easy.
3. Divisibility
Is the ability to divide and conquer.
A twenty-dollar bill can be traded for a ten, a five, four ones,
and four thirds.
A cow, on the other hand,
is difficult to divide.
4. Uniformity
Cows come in a variety of
sizes and shapes, and each one has a different value; cows aren't a
particularly standardized type of currency.
The size, shape, and value of twenty-dollar bills are all the same; they are very standardized.
5. Limited Availability.
Money must have a finite
supply in order to preserve its value.
Although the supply of cows is relatively small, you can bet that if they were used as income, ranchers would do all they could to increase the supply of cows, lowering their value.
The Federal Reserve regulates the supply of 20-dollar notes, and therefore the value of money in general, to ensure that money retains its value over time.
6. Acceptableness.
Despite the intrinsic
value of cows, some people may refuse to accept cattle as payment.
Men, on the other hand, are more than happy to accept $20 notes.
In fact, the US government
defends your right to pay your bills with US currency.
At this point, it appears "udderly" obvious that, based on the characteristics of money, US $20 bills are a far better type of money than cattle.
To summarize, money has evolved over time, but it has always served three functions: store of value, unit of account, and medium of exchange.
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Back then in secondary school, in our economics class, those were the finite characteristics of money. They never changed and you have just highlighted them in an awesome again.
ReplyDeleteI appreciate those memories and documentations you always keep in the archives. This is detailed as if a thesis is written on what money is. Good one sir, more if it. Once one stops acquiring knowledge and possible rebuilding of one, then he is dormant already.
Good work sir.
It's good to read from you Ben
DeleteYes this is Economics 101 but then how many people still remember what they studied in Economics back in High School days?