CHAPTER ONE | WHAT IS MONEY?
Money answers all things.
The hunger to make money, live well and be able to provide for the need of one and his family drives the average human being into either, seeking out legitimate means of getting the desired wealth or going to any length to get it.
What is money?
Money is simply defined as a medium of exchange and a legal tender. It can further be described as a medium of exchange that facilitates trade.
Money serves three functions; it is a medium of exchange, a store of value and a unit of account.
Trade by Barter
Trade by barter can be described as the exchanging or swapping of goods and services for other goods and services. It was the acceptable medium of exchange before the introduction of money.
Characteristics of Money
1. Durability
In this sense, means the ability of the item to retain its shape, size and substance over a period of time.
Durability also extends beyond the physical realm to include social and institutional durability.
The durability of modern money, especially paper currency and the bank account balances, depends on the durability of social institutions - especially banks and governments.
The ability of a currency to be relevant and still have value over a period of time goes beyond the physical durability to the institutional stability of the government.
Another aspect of durability is an item that works as a medium of exchange precisely because it stores value from one transaction to the next.
2. Divisible
For an item to function as the medium of exchange, it must have increments that allow it to be exchanged for items, whether big or small.
3. Transportable
The need for ease of transportation played an important role in the progression of money to the way it is now.
4. Not Easily Counterfeited
Every economy needs the government of the day to regulate the total quantity of money in circulation. By controlling money duplication, governments are also able to control the total quantity in circulation, and this control is what gives money value in exchange.
Types of Money
Commodity Money
Commodity money started as barter. Unlike diamonds, metals can be melted down and reformed into smaller quantities for smaller purchases without losing value.
The Byzantine Empire had a perfect monetary system: the best in history. Commodity money is limited arbitrarily by the scarcity of the resource.
Gold Standard
The amount of gold in the world does not affect its ability to serve as money. Gold can be effectively traded in small quantities.
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