Essay on What is Money - Desklib

Running head: ECONOMIC ESSAY
Essay on "What is Money?"
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ECONOMIC 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

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ECONOMIC 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).