The role and nature of money

“The role and nature of money” There is a scene in the movie called “The Boiler Room”, where Ben Affleck pays the role of a recruiter in a brokerage firm. During his recruitment speech he says “anybody tells you money is the root of all evil, doesn’t f**Kin’ have any. They say money can’t buy happiness? Look at my f**kin’ smile on my face. Ear to ear, baby…” so the question is what is money? Different people have different meaning for money. Some people equate money as having wealth like “Bill Gates has a lot of money” In economics however, the term money is specifically used to refer to currency which might not be the only source of wealth one has. The simplest definition of money is something of value. There are many functions of money and different kind of money. To understand the role and nature of money we first have to briefly explore the history of money. In the beginning people use the barter system where goods and services were exchanged for other goods and services to benefit participating parties equally in their mutual interest. This system worked for thousands of years but it lacked verity, what if you wanted something that the other person had but the other person was not interested in what you had to offer. To solve that problem, humans developed what is known as commodity money where bags of salt, livestock and even crops were exchanged and used as an early form of payment. As the metal age came so did the introduction of precious metal as money or currency. In China shells were used as money and later paper money became common. Lydians were the first in the Western world to use metal coins as currency. Then came the age of representative money where what money itself was made up of no longer had to be valuable. Representative money was backed by its government and or a bank. The idea was that the government or the bank promised the receiver of the money that papers issued by the government or the bank would be exchanged for a set amount of gold or silver. A good example of that would be the old British Pound Sterling note which was once guaranteed by Britain to be exchanged for a pound of sterling silver. The era of representative money lasted throughout the nineteenth and twentieth century. The gold standard was used to represent all the major world currencies. As the world got more hostile and engulfed in wars, the gold standard was replaced and fiat money was introduced in the place of representative money. Fiat is the Latin word for “let it be done”. Money was given value by their respective government in a form of Fiat or decree, meaning enforceable legal tender laws were made. Refusal of “legal tender” money in the favor of any other form of payment became illegal.
In our society today money has different functions. According to economists, four main functions are prevalent when it comes to money. (a) Medium of exchange: From the very start money has been performing an important function which is medium of exchange in the society. Money enables us to perform transaction of goods and services as a medium of exchange. Producers sell their product in exchange of money and consumers buy the goods from sellers and producers goods and services in exchange of money.
(b) Measurement of Value: Money measures the value of each good or service presented and produced in the world market. Simply put, money works as a standard unit of value. Now the value of goods and services are expressed in terms of money such as Dollars. Let say $1 buys me 10 pieces of hard shell candy.
(c). Money, the standard of deferred payments: In today’s modern market system is based on cash and credit where credit is paid with money only. In this new economic system money also acts as the basis of deferred payment system besides being basis of current transactions. Only money is used in satisfying both creditors and debtors when settling accounts of deferred payments so no one loses.
(d). Store of Value: Another advantage of money is that money helps people to store surplus purchasing power so they can use their money whenever they wanted to use it. The ability to store up value was one of value that the barter system lacked. Saving money and using it later facilitated in accumulation of money and became one of the key basis of promoting capital formation and production techniques and corporate business culture.
As we move into the modern age. The age of high speed internet and instant computer communications and business transactions one thing to note is that money have evolved but not much in a few hundred years. Money’s value has change from time to time but not its functions or how it is used; only thing that has been expedited is in the speed and the manner in which money transaction are done. A good example is the Island of Yap. A small island located in the middle of Pacific ocean where people use large limestone disc as a form of money. The people of Yap use these large stone discs because limestone is rear in Yap and also it was used to conduct large purchases like a parcel of land or paying a daughter’s dowry. They traded stone money for goods and services. Because these stone discs were heavy, the idea of this physical money became very abstract. “They often talk about the stones themselves not changing hands at all, in fact, most of the time they wouldn’t.” explained Scott Fitzpatrick, an expert on Yap and a renound anthropologist at North Carolina State University. Most of the time the stone was just left in one place but everyone knew that the ownership of the stone has passed from one person to another without the stone being moved. Not unlike how money works today. Most of the time money is just some numerical amount that travels from one screen to another such as from your company’s bank account to your bank account and if you make a purchase with you debit card at a grocery store the numerical amount is passed from your bank account from your bank to your grocery store’s bank account. You see money only when you cash a check or pay in cash and use paper currency is when you can physically see and touch it but besides that it is just numbers passing from one account to another.