Essay on What is Money - Desklib
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This essay aims to focus on different aspects of money, that is, its background, features, functionalities or purposes and importance in the economies. The major functions of money are to act as medium of exchange, a measure of value or unit of account, store of value and as a Standard of deferred payment. There are various types of money, namely, commodity money, bank money and fit money. Read more on Desklib.
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Running head: ECONOMIC ESSAY
Essay on "What is Money?"
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Essay on "What is Money?"
Name of the Student:
Name of the University:
Author note:
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1ECONOMIC ESSAY
Introduction
The term ‘Money’ is the foundation of economics since ages. Money refers to the most
important object in the subject of economics. It is the single most significant thing that makes the
world go around. All types of economic activities and development of the communities depend
on the stock of money of the countries, and thus, without money, economies cannot function.
The economies across the world focus on the exchange of good, services and resources with a
sole objective of increasing the money supply to achieve growth and development. Lack of
money of a nation becomes a determining factor of their level of development and quality of life
and hence, it is highly important to know the basics of money and its different aspects. As
highlighted by Bandelj, Wherry and Zelizer, in a simple term, money refers to the medium of
exchange. However, money is more than simply an exchange medium and it includes aspects
like store of value, unit of account and sometimes a standard of deferred payment. Thus, any
quantifiable object that satisfies these criteria, is considered as money. This essay aims to focus
on different aspects of money, that is, its background, features, functionalities or purposes and
importance in the economies.
Discussion
Money is a very broad term. The origin of money attributes to the need of exchange of
goods and services and measurement of values of those objects. As mentioned in a report by
Burn-Callander, money has been associated with human beings since 3000 years. The need for
money originated from the barter system, where people used to trade between goods to meet
their needs and wants. Before currencies or money were developed, the forms of the barter
systems included domestic livestock, agricultural production, such as, crops, vegetables etc. As
Introduction
The term ‘Money’ is the foundation of economics since ages. Money refers to the most
important object in the subject of economics. It is the single most significant thing that makes the
world go around. All types of economic activities and development of the communities depend
on the stock of money of the countries, and thus, without money, economies cannot function.
The economies across the world focus on the exchange of good, services and resources with a
sole objective of increasing the money supply to achieve growth and development. Lack of
money of a nation becomes a determining factor of their level of development and quality of life
and hence, it is highly important to know the basics of money and its different aspects. As
highlighted by Bandelj, Wherry and Zelizer, in a simple term, money refers to the medium of
exchange. However, money is more than simply an exchange medium and it includes aspects
like store of value, unit of account and sometimes a standard of deferred payment. Thus, any
quantifiable object that satisfies these criteria, is considered as money. This essay aims to focus
on different aspects of money, that is, its background, features, functionalities or purposes and
importance in the economies.
Discussion
Money is a very broad term. The origin of money attributes to the need of exchange of
goods and services and measurement of values of those objects. As mentioned in a report by
Burn-Callander, money has been associated with human beings since 3000 years. The need for
money originated from the barter system, where people used to trade between goods to meet
their needs and wants. Before currencies or money were developed, the forms of the barter
systems included domestic livestock, agricultural production, such as, crops, vegetables etc. As
2ECONOMIC ESSAY
the civilizations across the world started to develop, they introduced their own exchange units
and eventually the concept of money developed as a medium of exchange. It is believed that the
first currency was introduced in 600 BC by King Alyattes in Lydia, and the first coin also
featured the image of a roaring lion. The evolution of coins to bank notes occurred around 1661
AD, while the first credit note was introduced in 1946 (Cohen). Over the years, as per the needs
and availability of metals, the evolution of money happened and it can be seen in its current form
of different currencies for different countries.
The major functions of money are to act as medium of exchange, a measure of value or
unit of account, store of value and as a Standard of deferred payment (Johnson). In other words,
money is considered as an economic good, and also a mean of economic calculation, apart from
being the exchange medium. The origin of money is attributed to three purposes, trading, social
and religious (Quiggin). It is also known as the liquid asset.
The concept of money was developed from the disadvantages of the barter system. The
issue of coincidence of want was an inefficiency of the barter system. Two individuals possessed
two different items for exchange but when one individual possessed an item, which was not
required by the other person, difficulties in exchange emerged in the barter system. The second
individual required to find another person who would possess the item that he needed and
perform indirect barter. With the increase in production of different types of products and
increase in the needs of people, the difficulties in exchanging goods kept on increasing too. This
led to the invention of a common medium of exchange, known as money (Quiggin). It helped in
getting goods without any exchange for other goods, which might be unnecessary for the person,
and also to compare the values of dissimilar objects (Zelizer).
the civilizations across the world started to develop, they introduced their own exchange units
and eventually the concept of money developed as a medium of exchange. It is believed that the
first currency was introduced in 600 BC by King Alyattes in Lydia, and the first coin also
featured the image of a roaring lion. The evolution of coins to bank notes occurred around 1661
AD, while the first credit note was introduced in 1946 (Cohen). Over the years, as per the needs
and availability of metals, the evolution of money happened and it can be seen in its current form
of different currencies for different countries.
The major functions of money are to act as medium of exchange, a measure of value or
unit of account, store of value and as a Standard of deferred payment (Johnson). In other words,
money is considered as an economic good, and also a mean of economic calculation, apart from
being the exchange medium. The origin of money is attributed to three purposes, trading, social
and religious (Quiggin). It is also known as the liquid asset.
The concept of money was developed from the disadvantages of the barter system. The
issue of coincidence of want was an inefficiency of the barter system. Two individuals possessed
two different items for exchange but when one individual possessed an item, which was not
required by the other person, difficulties in exchange emerged in the barter system. The second
individual required to find another person who would possess the item that he needed and
perform indirect barter. With the increase in production of different types of products and
increase in the needs of people, the difficulties in exchanging goods kept on increasing too. This
led to the invention of a common medium of exchange, known as money (Quiggin). It helped in
getting goods without any exchange for other goods, which might be unnecessary for the person,
and also to compare the values of dissimilar objects (Zelizer).
3ECONOMIC ESSAY
Secondly, Doepke and Schneider highlighted that unit of account refers to the standard
numerical financial unit for measuring the market value of the goods and services and all other
type of resources. Money is created to have a common measurement unit of the market values of
the products and services to establish easier trade agreements and relations across multiple
economies of the world. Thirdly, money is also useful as a store of value. The instrument is
easier for saving, storing and retrieved to be used as an exchange medium. The value of this
financial instrument also remains stable over time, however, the events like inflation or deflation
affects the value of money and its purchasing capacity, but that is only to some extent and not
entirely (Numa). Lastly, money is a good instrument for using as a standard of deferred payment.
It is a good measure for settling debt, which is used as a legal tender. Hence, money acts as a
useful object for clearing debts and as credit notes for exchanges of goods and services
(Lapavitsas). To fulfill these above functionalities, money must have the characteristics of
transferability, portability, durability, interchangeability, stability and cognizability (Caton).
There are various types of money, namely, commodity money, bank money and fit
money. Commodity money represents a product, the value of which can be served as the value of
the money. Gold bars or gold coins are considered as commodity money as their value can be
used in place of the money value (Bankov). The bank money is referred to the credit notes
extended by the banks to their depositors. For example, checks are considered as bank money as
for transactions using checks, which are drawn on the bank deposits use the bank money for
conducting the transactions (Ketterer and Andrade). As stated by Luther and White, fiat money
refers to the currency issued by the government which is not backed by any commodity as gold,
that is, the fiat money is the one, which is declared as a legal tender by a legal decree and enables
the central banks to have a greater control on the economy as the amount of money printing and
Secondly, Doepke and Schneider highlighted that unit of account refers to the standard
numerical financial unit for measuring the market value of the goods and services and all other
type of resources. Money is created to have a common measurement unit of the market values of
the products and services to establish easier trade agreements and relations across multiple
economies of the world. Thirdly, money is also useful as a store of value. The instrument is
easier for saving, storing and retrieved to be used as an exchange medium. The value of this
financial instrument also remains stable over time, however, the events like inflation or deflation
affects the value of money and its purchasing capacity, but that is only to some extent and not
entirely (Numa). Lastly, money is a good instrument for using as a standard of deferred payment.
It is a good measure for settling debt, which is used as a legal tender. Hence, money acts as a
useful object for clearing debts and as credit notes for exchanges of goods and services
(Lapavitsas). To fulfill these above functionalities, money must have the characteristics of
transferability, portability, durability, interchangeability, stability and cognizability (Caton).
There are various types of money, namely, commodity money, bank money and fit
money. Commodity money represents a product, the value of which can be served as the value of
the money. Gold bars or gold coins are considered as commodity money as their value can be
used in place of the money value (Bankov). The bank money is referred to the credit notes
extended by the banks to their depositors. For example, checks are considered as bank money as
for transactions using checks, which are drawn on the bank deposits use the bank money for
conducting the transactions (Ketterer and Andrade). As stated by Luther and White, fiat money
refers to the currency issued by the government which is not backed by any commodity as gold,
that is, the fiat money is the one, which is declared as a legal tender by a legal decree and enables
the central banks to have a greater control on the economy as the amount of money printing and
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4ECONOMIC ESSAY
supply is controlled by the central bank and the government. Majority of the currencies in the
modern world, such as, the USD is a fiat money. It is also known as the physical or paper money.
It does not have any intrinsic value but has the face value, declared by the government of the
economy. In a world, dominated by highly advanced technology, money has taken the form of
bitcoin and e-wallets, that is, virtual money, most commonly used for e-commerce and online
transaction purposes (Bjerg).
In the international trade, the value of money plays a significant role. It determines the
level of goods and services purchased overtime. Incidences like inflation or deflation and
exchange rate volatility affects the value of money, which in turn alters the purchasing capacity
of the money. As the economies got developed overtime, the policies regarding money supply in
the economy, investment, allocation, lending and crediting etc. were developed by the
governments and the central banks. These policies kept on modifying as per the level of
production of the economies and level of international trade to achieve further growth in the
economies (Palley).
Conclusion
From the above discussion, it can be said that in the modern economies money is that
legal instrument issued and controlled by the governments and the central banks as a reliable
medium of exchange, unit of measurement and account, store of value and standard of deferred
payments through various forms. It is the most important object in an economy that controls the
growth and development by facilitating the supply of money within the economies.
supply is controlled by the central bank and the government. Majority of the currencies in the
modern world, such as, the USD is a fiat money. It is also known as the physical or paper money.
It does not have any intrinsic value but has the face value, declared by the government of the
economy. In a world, dominated by highly advanced technology, money has taken the form of
bitcoin and e-wallets, that is, virtual money, most commonly used for e-commerce and online
transaction purposes (Bjerg).
In the international trade, the value of money plays a significant role. It determines the
level of goods and services purchased overtime. Incidences like inflation or deflation and
exchange rate volatility affects the value of money, which in turn alters the purchasing capacity
of the money. As the economies got developed overtime, the policies regarding money supply in
the economy, investment, allocation, lending and crediting etc. were developed by the
governments and the central banks. These policies kept on modifying as per the level of
production of the economies and level of international trade to achieve further growth in the
economies (Palley).
Conclusion
From the above discussion, it can be said that in the modern economies money is that
legal instrument issued and controlled by the governments and the central banks as a reliable
medium of exchange, unit of measurement and account, store of value and standard of deferred
payments through various forms. It is the most important object in an economy that controls the
growth and development by facilitating the supply of money within the economies.
5ECONOMIC ESSAY
References
Bandelj, Nina, Frederick F. Wherry, and Viviana A. Zelizer, eds. Money talks: explaining how
money really works. Princeton University Press, 2017.
Bankov, Kristian. "From gold to futurity: a semiotic overview on trust, legal tender and fiat
money." Social Semiotics 29.3 (2019): 336-350.
Bjerg, Ole. "How is bitcoin money?." Theory, Culture & Society 33.1 (2016): 53-72.
Burn-Callander, Rebecca. "The History Of Money: From Barter to Bitcoin". Telegraph.Co.Uk,
2014, https://www.telegraph.co.uk/finance/businessclub/money/11174013/The-history-of-
money-from-barter-to-bitcoin.html.
Caton, James. "Status Functions, Speech Acts, and the Emergence of Money." AIER Sound
Money Project Working Paper 2019-15 (2019).
Cohen, Benjamin J. The geography of money. Cornell University Press, 2018.
Cohen, Dov, Faith Shin, and Xi Liu. "Meanings and functions of money in different cultural
milieus." Annual review of psychology 70 (2019): 475-497.
Doepke, Matthias, and Martin Schneider. "Money as a unit of account." Econometrica 85.5
(2017): 1537-1574.
Johnson, Harry G. "Major Issue in Monetary Economics." Macroeconomics and Monetary
Theory. Routledge, 2017. 55-58.
Ketterer, Juan Antonio, and Gabriela Andrade. Digital central bank money and the unbundling of
the banking function. Inter-American Development Bank, 2016.
References
Bandelj, Nina, Frederick F. Wherry, and Viviana A. Zelizer, eds. Money talks: explaining how
money really works. Princeton University Press, 2017.
Bankov, Kristian. "From gold to futurity: a semiotic overview on trust, legal tender and fiat
money." Social Semiotics 29.3 (2019): 336-350.
Bjerg, Ole. "How is bitcoin money?." Theory, Culture & Society 33.1 (2016): 53-72.
Burn-Callander, Rebecca. "The History Of Money: From Barter to Bitcoin". Telegraph.Co.Uk,
2014, https://www.telegraph.co.uk/finance/businessclub/money/11174013/The-history-of-
money-from-barter-to-bitcoin.html.
Caton, James. "Status Functions, Speech Acts, and the Emergence of Money." AIER Sound
Money Project Working Paper 2019-15 (2019).
Cohen, Benjamin J. The geography of money. Cornell University Press, 2018.
Cohen, Dov, Faith Shin, and Xi Liu. "Meanings and functions of money in different cultural
milieus." Annual review of psychology 70 (2019): 475-497.
Doepke, Matthias, and Martin Schneider. "Money as a unit of account." Econometrica 85.5
(2017): 1537-1574.
Johnson, Harry G. "Major Issue in Monetary Economics." Macroeconomics and Monetary
Theory. Routledge, 2017. 55-58.
Ketterer, Juan Antonio, and Gabriela Andrade. Digital central bank money and the unbundling of
the banking function. Inter-American Development Bank, 2016.
6ECONOMIC ESSAY
Lapavitsas, Costas. "The Theory of Credit Money: A Structural Analysis." Marxist Monetary
Theory. Brill, 2017. 23-50.
Llewellyn, Nick. "‘Money Talks’: Communicative and Symbolic Functions of Cash
Money." Sociology 50.4 (2016): 796-812.
Lucas Jr, Robert E., and Juan Pablo Nicolini. "On the stability of money demand." Journal of
Monetary Economics 73 (2015): 48-65.
Luther, William J., and Lawrence H. White. "Positively Valued Fiat Money after the Sovereign
Disappears: The Case of Somalia." Review of Behavioral Economics 3.3-4 (2016): 311-334.
Moor, Liz. "Money: communicative functions of payment and price." Consumption Markets &
Culture 21.6 (2018): 574-581.
Numa, Guy. "Money as a Store of Value: J.-B. Say on Hoarding and Idle Balances." History of
Political Economy 52.2 (2019).
Ovans, Andrea. "What is a business model." Retrieved July 5 (2015): 2016.
Palley, Thomas I. "Money, fiscal policy, and interest rates: A critique of Modern Monetary
Theory." Review of Political Economy 27.1 (2015): 1-23.
Quiggin, A. Hingston. A survey of primitive money: The beginnings of currency. Routledge,
2017.
Zelizer, Viviana A. The social meaning of money. Princeton University Press, 2017.
Lapavitsas, Costas. "The Theory of Credit Money: A Structural Analysis." Marxist Monetary
Theory. Brill, 2017. 23-50.
Llewellyn, Nick. "‘Money Talks’: Communicative and Symbolic Functions of Cash
Money." Sociology 50.4 (2016): 796-812.
Lucas Jr, Robert E., and Juan Pablo Nicolini. "On the stability of money demand." Journal of
Monetary Economics 73 (2015): 48-65.
Luther, William J., and Lawrence H. White. "Positively Valued Fiat Money after the Sovereign
Disappears: The Case of Somalia." Review of Behavioral Economics 3.3-4 (2016): 311-334.
Moor, Liz. "Money: communicative functions of payment and price." Consumption Markets &
Culture 21.6 (2018): 574-581.
Numa, Guy. "Money as a Store of Value: J.-B. Say on Hoarding and Idle Balances." History of
Political Economy 52.2 (2019).
Ovans, Andrea. "What is a business model." Retrieved July 5 (2015): 2016.
Palley, Thomas I. "Money, fiscal policy, and interest rates: A critique of Modern Monetary
Theory." Review of Political Economy 27.1 (2015): 1-23.
Quiggin, A. Hingston. A survey of primitive money: The beginnings of currency. Routledge,
2017.
Zelizer, Viviana A. The social meaning of money. Princeton University Press, 2017.
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