Economics
Money
Money is a medium of exchange, unit of account, and store of value widely accepted in transactions. It can be in the form of coins, banknotes, or digital currency. In economics, money facilitates trade, enables specialization, and serves as a measure of value for goods and services.
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12 Key excerpts on "Money"
eBook - PDFMonetary Economics
Theories, Evidence and Policy
- David G. Pierce, Peter J. Tysome(Authors)
- 2014(Publication Date)
- Butterworth-Heinemann(Publisher)
The functions, advantages and defínitions of Money The major part of this book is concerned with the role of Money in the workings of the macroeconomy, i.e. the relationships that are thought to exist between the stock of Money and such macroeconomic variables as the level of, and rates of change of, unemployment, interest rates and prices. As a prehminary to these matters, this first chapter will consider the very basic issues of what Money is and why we have it at all. We begin by setting out the traditional functions of Money. We then look at the nature of a monetary economy and the advantages to be derived from using Money. Next we consider some of the various theoretical and empirical definitions of Money which have been suggested by economists, and look at the problems involved in trying to enumerate all those assets which are embraced by the definitions. Finally, we set out the official definitions of Money that are employed in the United Kingdom. The functions of Money The word 'Money', as used in economics, has two quite distinct meanings. Firstly, it has an abstract meaning in that it is the unit of account or the measure of exchange value. This simply means that Money is a sort of common denominator, in terms of which the exchange value of all other goods and services can be expressed. Money in this sense is simply a unit of measurement, denoting the value in exchange of all goods and services, just as, for example, metres denote length, ohms give electrical resistance, and degrees centigrade give temperature. The use of a unit of account greatly reduces the number of exchange ratios between goods and services. With η commodities, one of which is acting as a unit of account, there will need to be only n-l rates of exchange. Without a unit of account, however, there will be V2n{n-) separate rates of exchange.
eBook - PDFMoney as God?
The Monetization of the Market and its Impact on Religion, Politics, Law, and Ethics
- Jürgen von Hagen, Michael Welker(Authors)
- 2014(Publication Date)
- Cambridge University Press(Publisher)
Much of this confusion results from the fact that discussions of Money often start from an inadequate definition of it, focusing on three functions Money supposedly fulfills in an economy. In this tradition, to which even renowned economists adhere, Money is defined as anything that simultaneously serves as: (1) a means of payment, (2) a store of value, and (3) a unit of account. That is, “Money is what Money does.” 3 Defining Money in terms of these three functions is awkward, because it contradicts the experience that not everything that assumes these roles in an economy is deemed Money in practice. For example, interest- bearing assets serve both as stores of value and mediums of exchange in modern economies where banks offer checkable asset accounts. 2 A. Hingston Quiggin, A Survey of Primitive Money. London: Methuen and Company 1970, 1. 3 O. Issing, Einführung in die Geldtheorie. Munich: Verlag Vahlen, 13th edn. 2003, 3. Hingston Quiggin, A Survey of Primitive Money, replaces the second function as being a symbol of wealth. 20 Jürgen von Hagen Under such circumstances, “dollars” or “euros” are still the unit of account, but no longer the medium of exchange. More generally, Fama argues that there is nothing that requires an economy’s medium of exchange to be its unit of account. 4 In fact, any commodity could serve as a unit of account. 5 While competition and market forces can make an economy switch from one medium of exchange to another, the choice of a unit of account is a problem markets cannot solve easily. A unit of account is an important element of communication among market participants, and its attractiveness depends on how many agents in the economy use it. Therefore, its choice involves economies of scale and network externalities different from those involved in the choice of medium of exchange. Grierson points to historical examples of diver- gences between a society’s unit of account and its medium of exchange, e.g.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor(Authors)
- 2014(Publication Date)
- Openstax(Publisher)
This chapter discusses what economists mean by Money, and how Money is closely interrelated with the banking system. Monetary Policy and Bank Regulation furthers this discussion. 14.1 | Defining Money by Its Functions By the end of this section, you will be able to: • Explain the various functions of Money • Contrast commodity Money and fiat Money Money for the sake of Money is not an end in itself. You cannot eat dollar bills or wear your bank account. Ultimately, the usefulness of Money rests in exchanging it for goods or services. As the American writer and humorist Ambrose Bierce (1842–1914) wrote in 1911, Money is a “blessing that is of no advantage to us excepting when we part with it.” Money is what people regularly use when purchasing or selling goods and services, and thus Money must be widely accepted by both buyers and sellers. This concept of Money is intentionally flexible, because Money has taken a wide variety of forms in different cultures. Barter and the Double Coincidence of Wants To understand the usefulness of Money, we must consider what the world would be like without Money. How would people exchange goods and services? Economies without Money typically engage in the barter system. Barter—literally trading one good or service for another—is highly inefficient for trying to coordinate the trades in a modern advanced economy. In an economy without Money, an exchange between two people would involve a double coincidence of wants, a situation in which two people each want some good or service that the other person can provide. For example, if an accountant wants a pair of shoes, this accountant must find someone who has a pair of shoes in the correct size and who is willing to exchange the shoes for some hours of accounting services. Such a trade is likely to be difficult to arrange. Think about the complexity of such trades in a modern economy, with its extensive division of labor that involves thousands upon thousands of different jobs and goods.
- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
This chapter discusses what economists mean by Money, and how Money is closely interrelated with the banking system. Monetary Policy and Bank Regulation (http://cnx.org/content/ m63716/latest/) furthers this discussion. 13.1 | Defining Money by Its Functions By the end of this section, you will be able to: • Explain the various functions of Money • Contrast commodity Money and fiat Money Money for the sake of Money is not an end in itself. You cannot eat dollar bills or wear your bank account. Ultimately, the usefulness of Money rests in exchanging it for goods or services. As the American writer and humorist Ambrose Bierce (1842–1914) wrote in 1911, Money is a “blessing that is of no advantage to us excepting when we part with it.” Money is what people regularly use when purchasing or selling goods and services, and thus both buyers and sellers must widely accept Money. This concept of Money is intentionally flexible, because Money has taken a wide variety of forms in different cultures. Barter and the Double Coincidence of Wants To understand the usefulness of Money, we must consider what the world would be like without Money. How would people exchange goods and services? Economies without Money typically engage in the barter system. Barter—literally trading one good or service for another—is highly inefficient for trying to coordinate the trades in a modern advanced economy. In an economy without Money, an exchange between two people would involve a double coincidence of wants, a situation in which two people each want some good or service that the other person can provide. For example, if an accountant wants a pair of shoes, this accountant must find someone who has a pair of shoes in the correct size and who is willing to exchange the shoes for some hours of accounting services.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
This chapter discusses what economists mean by Money, and how Money is closely interrelated with the banking system. Monetary Policy and Bank Regulation furthers this discussion. 14.1 | Defining Money by Its Functions By the end of this section, you will be able to: • Explain the various functions of Money • Contrast commodity Money and fiat Money Money for the sake of Money is not an end in itself. You cannot eat dollar bills or wear your bank account. Ultimately, the usefulness of Money rests in exchanging it for goods or services. As the American writer and humorist Ambrose Bierce (1842–1914) wrote in 1911, Money is a “blessing that is of no advantage to us excepting when we part with it.” Money is what people regularly use when purchasing or selling goods and services, and thus both buyers and sellers must widely accept Money. This concept of Money is intentionally flexible, because Money has taken a wide variety of forms in different cultures. Barter and the Double Coincidence of Wants To understand the usefulness of Money, we must consider what the world would be like without Money. How would people exchange goods and services? Economies without Money typically engage in the barter system. Barter—literally trading one good or service for another—is highly inefficient for trying to coordinate the trades in a modern advanced economy. In an economy without Money, an exchange between two people would involve a double coincidence of wants, a situation in which two people each want some good or service that the other person can provide. For example, if an accountant wants a pair of shoes, this accountant must find someone who has a pair of shoes in the correct size and who is willing to exchange the shoes for some hours of accounting services. Such a trade is likely to be difficult to arrange. Think about the complexity of such trades in a modern economy, with its extensive division of labor that involves thousands upon thousands of different jobs and goods.
eBook - ePubDeciphering Markets and Money
A Sociological Analysis of Economic Institutions
- Jukka Gronow(Author)
- 2020(Publication Date)
- Helsinki University Press(Publisher)
It is a medium of exchange, a store of value, and a unit of account. If ‘Money is what Money does,’ one could well argue that in order for something to deserve to be called Money it has to fulfill all three functions. 2 The standard economic theory of Money concentrates on one of the functions: Money as a means of exchange. In these theories, Money comes into being as an unintended consequence of the economic rational reasoning of the individuals. 3 As Smith believed, in order to maximize their barter options, astute traders will hold in stock some of the most regularly exchanged commodities that they expect others will accept in the future in exchange for the goods they possess. Consequently, one of these, more or less gradually, and as if by chance, emerges from among all the myriad options on offer as the general media of exchange, mainly because of its advantageous material properties, such as durability, divisibility, and portability. In various historical periods, different kinds of valuables have acted as means of exchange, for instance, furs in the Novgorod Russia’s fur trade with Western Europe or huge stone rings in ancient Polynesia. Finally, a generally accepted coinage emerges, as if crystallized out of all available options, the value of which is based on the extraordinarily high value of precious metals. The general media of exchange, or Money, allows for the natural process of barter trade to develop into more extensive and general exchange of commodities, and finally to a fully fledged market economy. In these mythical genealogies of Money, the traders come to realize that their life would be much more convenient if they could trade with each other using a generally accepted commodity, Money. Money is, in other words, invented and based on a social contract, as if men had in ancient times come together and agreed on the use of some particular commodity as their general means of exchange
eBook - PDF- David Shapiro, Daniel MacDonald, Steven A. Greenlaw(Authors)
- 2022(Publication Date)
- Openstax(Publisher)
This chapter discusses what economists mean by Money, and how Money is closely interrelated with the banking system. Monetary Policy and Bank Regulation furthers this discussion. 14.1 Defining Money by Its Functions LEARNING OBJECTIVES By the end of this section, you will be able to: • Explain the various functions of Money • Contrast commodity Money and fiat Money Money for the sake of Money is not an end in itself. You cannot eat dollar bills or wear your bank account. Ultimately, the usefulness of Money rests in exchanging it for goods or services. As the American writer and humorist Ambrose Bierce (1842–1914) wrote in 1911, Money is a “blessing that is of no advantage to us excepting when we part with it.” Money is what people regularly use when purchasing or selling goods and services, and thus both buyers and sellers must widely accept Money. This concept of Money is intentionally flexible, because Money has taken a wide variety of forms in different cultures. Barter and the Double Coincidence of Wants To understand the usefulness of Money, we must consider what the world would be like without Money. How would people exchange goods and services? Economies without Money typically engage in the barter system. Barter—literally trading one good or service for another—is highly inefficient for trying to coordinate the trades in a modern advanced economy. In an economy without Money, an exchange between two people would involve a double coincidence of wants, a situation in which two people each want some good or service that the other person can provide. For example, if an accountant wants a pair of shoes, this accountant must find someone who has a pair of shoes in the correct size and who is willing to exchange the shoes for some hours of accounting services.
- Michael Brandl(Author)
- 2016(Publication Date)
- Cengage Learning EMEA(Publisher)
Here we examine why this is the case and how difficult it actually is to measure the Money supply. Finally, one thing we will come back to again and again is the “price of Money.” One, but not the only, price of Money is interest rates. We take a look at why interest rates exist and how they are used in calculating the value today of Money we will receive in the future, as well as the value of Money in the future that we have today. The changes in the price of Money can have a large impact on just how fast, or slow, the economic world goes around and around. 2-1a Money Defined Whenever you begin studying a new concept, it is often best to start with a formal definition. A formal definition of Money would read something like this: Money: Anything that is generally acceptable in exchange for goods and services and/or repayment of debt. What does that really tell us? First, notice it says “anything”; there is no mention that Money has to come from the government or the central bank, or even from banks in general. Money is something that people “generally accept” in exchange for goods and services. Note that just because a government or central bank issues currency does not mean it will be accepted as Money. For example, leading up to the Russian Ruble Crisis of 1999, people in Russia stopped using the official, government-issued ruble in exchange for goods and services. Thus the ruble was ceasing to be Money because it was no longer “generally accepted” by the Russian people. Later in this chapter we look at how a wide variety of things, including vodka during the Russian Ruble Crisis, has functioned as Money over time. At this point, don’t get hung up on the idea that Money must be those little scraps of paper issued by the central bank that you are carrying around in your wallet. Remember, Money is anything that is generally acceptable in exchange for goods and services and/or repayment of debt.
eBook - ePub- Shahzavar Karimzadi(Author)
- 2012(Publication Date)
- Routledge(Publisher)
7 Money originated from its functionsIntroductionIt is a customary convention of almost every economics textbook to open the subject of Money by examining its essential definition. The definition most certainly revolves around one or a mixture of the functions of Money. The function that cannot escape almost any definition of Money is the medium of exchange. This function is inseparable from the theory of the origin of Money regardless of whatever definition is being used. When combined with other functions, it can either be the dominant or the subordinate function. That is typically specified either explicitly or implicitly depending on the author’s preference as to the overriding function.Money is a contingent factual entity. It is a social and economic necessity that emerged with specific social and economic conditions. Its necessity discerns no universal law. In view of this reality then one cannot come up with a universal definition of Money. The very term “define” presupposes the predicate of universality. A definition of Money which can be applied everywhere and all the time is doomed to failure. Moreover, the definition of Money that is not constructed from its functions would be no more than a verbal contortion. It remains in concepts that are empty of content. This is why economists either knowingly or subconsciously define Money in the context of what Money actually does rather than what Money actually is. The definition of Money then is presented as a description of its functions. Relying on the description of the functions of Money leaves room for greater flexibility in case of changing economic environment and the formation of new forms of Money.Defining Money from its functions liberates it from its abstract form. It is much easier to describe what a form of Money does rather than to give an abstract definition of it. An abstract definition that is used in all possible worlds would not last long. The possible worlds are not the same and keep changing. The four functions of Money that are more or less commonly acknowledged in textbooks are the functions of Money as a unit of account, a medium of exchange, a store of value and as a standard for deferred payments. The origin of Money is linked to one or combination of these functions. Chapter 7
eBook - PDFSovereign Money
Beyond Reserve Banking
- Joseph Huber(Author)
- 2016(Publication Date)
- Palgrave Macmillan(Publisher)
The value of Money is as certain or uncertain as is the value of income and capital generated through the uses of circulating Money. Money, as a means of payment, was never actually a functional store of value. Money is a means of circulation, in making payments, transferring income, or building capital, and in these functions a way of making the economic world go around, not something for hoarding in Uncle Scrooge’s treasure bunker. Traditional hoards of coin and bullion were dysfunctional because they deprived the economy of much-needed purchasing power. In modern times, too, holding large amounts of inactive Money (cash or depos- its) is dysfunctional for basically the same reason and also because inflation, even if low, reduces the purchasing power of the Money. 2.2 Types and Creators of Money In the present day, three types of Money are used—coins, paper Money (banknotes) and Money on account (bankMoney). Another type of Money, tally sticks from the middle ages, fell into disuse as the historical transition 10 Sovereign Money from traditional to modern economies advanced. Digital cash, as a possible future type of Money, is currently often seen as a modern substitute for solid coins and notes. Something like this might come about with blockchain tech- nology in future applications. For the time being, what is called electronic cash is not yet a means of payment in its own right, but always represents an amount of Money on account. What about complementary currencies operating, for example, on ‘time dollars’, ‘nursing hours’, and local monies in parallel to official Money? These are in fact used as means of payment, but cannot be seen as official Money. So far, they have been of limited use, for example, as emergency Money in times of crisis, or as a tool for the revitalization of depressed neighborhoods, or for the joy of social experimentation. In any case, complementary currencies rep- resent special-community or special-purpose monies.
eBook - PDFEconomic Analysis in Historical Perspective
Butterworths Advanced Economics Texts
- J. Creedy, D.P. O'Brien(Authors)
- 2014(Publication Date)
- Butterworth-Heinemann(Publisher)
Some of the differences over monetary control relate to different approaches to the rate of interest/and section 2.5 discusses the history of interest theory. However, the major source of division concerning monetary control is, inevitably, the transmission mechanisms, and these are discussed in section 2.6. 3 4 Monetary economics The overall picture which emerges is of a monetary theory which steadily evolved rather than being subject to revolutions. The changes of direction which monetary theory has taken have been changes of focus, of ranking of the objectives of monetary policy, rather than of analysis and concepts, both of which have developed to their present state over very long periods. 2.2 The concept of Money 2.2.1 Money DEFINITIONS AND THEIR RATIONALE Money is typically defined by specifying functions which have to be performed. First, and most importantly, there is the medium of exchange function. Then there are the roles of Money as a store of value, unit of account and standard for deferred payments. These qualities are seen as reducing transactions costs and as transmitting and summarizing information. To fulfil these functions, whatever is used as Money must have a number of characteristics. Those typically emphasized as necessary are general (even universal) acceptability, homogeneity, divisibility and portability. But there is by no means universal agreement on the categories of assets which possess these qualities to a satisfactory degree; and such disagreement has existed throughout the history of monetary theory. Nowadays the narrowest definition of Money is of currency plus sight deposits in commercial banks. To these, some of the most influential modern monetary writers, especially Friedman (1969), add time deposits in commercial banks. The question of whether interest-bearing deposits are Money has given rise to some considerable controversy in modern times.
- G.C. Harcourt(Author)
- 2019(Publication Date)
- Routledge(Publisher)
Without the information-flows obtained by the use of Money (or by some alternative or equivalent informational system), the system could not function. Even with the advantages accruing to the economy from the use of Money, the uncertainties are still so pervasive that maladjustments and unemployment occur. A monetary system is, therefore, a necessary adjunct for the development and expansion of a decentralised economy. But the institution of Money, which allows such decentralisation within the economy, is then sometimes blamed for the disequilibria which subsequently arise. Indeed this view that the existence of Money should reduce disequilibria within a given economy, or allow the greater expansion of an economy with no extra disequilibria resulting, does not seem to be generally accepted within the literature. Consider the following two quotations. The first is by Kessler; in Kessler (1972) he wrote: 1 Holtrop's monetary views are based on the recognition, already stressed by J. G. Koopmans in 1933, that J.B. Say's law of markets does not hold in a Money-using economy. In a barter economy every supply of goods implies a demand for goods. This rigid connection between supply and demand ceases to exist when Money is used in exchange for goods. It is only in a Money-using economy that 'pure demand' (reine Nachfrage) can exist, i.e., a demand for goods that is not met by a corresponding supply. This is the case when the purchasing power for the demand for goods is not derived from current income but from the creation or dishoarding of Money. Conversely, there may be a shortfall of demand (reine Nachfrageausfall) when income from production is 'lost' in destruction or hoarding of Money.
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