Economics
Money as a Medium of Exchange
Money as a medium of exchange refers to its function as a widely accepted intermediary in transactions, allowing goods and services to be traded without the need for bartering. This facilitates the smooth exchange of goods and services, as individuals can use money to easily acquire what they need and want.
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11 Key excerpts on "Money as a Medium of Exchange"
eBook - PDFBeyond Bitcoin
The Economics of Digital Currencies
- Hanna Halaburda, Miklos Sarvary(Authors)
- 2016(Publication Date)
- Palgrave Macmillan(Publisher)
However, as we saw in our historical overview, there are important frictions that limit trade or make it more difficult. Money is an impor - tant innovation in that it alleviates some of those frictions. M e d i u m o f E x c h a n g e : E v e r - P r e s e n t C o m p e t i t i o n 23 The adoption of a given type of money will depend on how well the money’s attributes satisfy consumers’ eco- nomic needs. We discussed a number of such attributes— for example, divisibility, ease of storage and transport—in our overview and we present them in its summary table. We now discuss them more systematically. Economists often use the following three-part definition of money: (1) unit of account, (2) medium of exchange, and (3) store of value. This definition means that two people can agree how much a good is worth in terms of money (that’s part 1); people accept the money when they are selling the good, because they believe it will be accepted elsewhere when they want to exchange it for a good they want to buy (part 2); and money will not lose its value drastically between the time people get it and the time they spend it to buy something else (part 3). These three characteristics make it possible for money to facilitate trade. Each of these dimensions is important. If we know that even one is missing, we would probably not accept a given kind of money in a transaction. There are, however, some issues with this definition. First of all, it is somewhat circular. In essence, it says that money is something that is being used as money . In this sense, it just describes an equilibrium. What it cannot do is tell us whether a can of mackerel or a Zimbabwean dollar is money. Moreover, the definition sounds like three yes-or-no questions, suggesting that if you answer “yes” three times, what you are evaluating is money . That’s not the case. For example, there is nothing that could serve as medium of exchange in all transactions and nothing that could potentially store value forever.
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 - PDFMonetary Economics
Policy and its Theoretical Basis
- Keith Bain, Peter Howells(Authors)
- 2017(Publication Date)
- Red Globe Press(Publisher)
This is particularly because the exchange of products in a modern economy is frequently based not on the transfer of notes and coin or bank deposits but on the promise to pay later. That is, the purchaser goes into debt, usually being granted credit by the seller or a financial intermedi-ary. Why, then, is not credit a ‘generally accepted medium of exchange’? Monetary economics accepts the importance of credit but has always sought to distinguish between ‘money’ and ‘credit’. The standard way of doing so has been to define the act of exchange such that it is only completed when the debt incurred by the purchase is settled and for this to happen there has to be a trans-fer of ‘money’. The meaning of money 10 The Oxford English Dictionary (draft revision, Dec. 2007) provides the following in its definition of ‘money’: 1. Any generally accepted medium of exchange which enables a society to trade goods without the need for barter; any objects or tokens regarded as a store of value and used as a medium of exchange. a. Coins and banknotes collectively as a medium of exchange. Later also more widely: any writ-ten, printed, or electronic record of ownership of the values represented by coins and notes which is generally accepted as equivalent to or exchangeable for these. b. Any other objects or materials which serve the same purpose as coins or banknotes .... 2. a. Means of payment considered as representing value or purchasing power; the power of purchase or means of exchange represented by coins, banknotes, cheques, etc. Hence: property, possessions, resources, etc., viewed as having exchangeable value or a value expressible in terms of monetary units; liquid assets, funds. b. With demonstrative or possessive adjective, or the. A monetary amount or sum applied to a particular purpose or in the possession of a particular person. c. spec. Money treated as a marketable commodity that can be bought, borrowed, etc.
eBook - ePubPrinciples of Political Economy
Abridged with Critical, Bibliographical, and Explanatory Notes, and a Sketch of the History of Political Economy
- John Stuart Mill, J. Laurence (James Laurence) Laughlin, (Authors)
- 2009(Publication Date)
- Perlego(Publisher)
Chapter IV. Of Money.§ 1. The three functions of Money—a Common Denominator of Value, a Medium of Exchange, a
“ Standard of Value ”.Having proceeded thus far in ascertaining the general laws of Value, without introducing the idea of Money (except occasionally for illustration), it is time that we should now superadd that idea, and consider in what manner the principles of the mutual interchange of commodities are affected by the use of what is termed a Medium of Exchange.As Professor Jevons 220 has pointed out, money performs three distinct services, capable of being separated by the mind, and worthy of separate definition and explanation:1. A Common Measure, or Common Denominator, of Value. 2. A Medium of Exchange. 3. A Standard of Value.F. A. Walker, 221 however, says:“ Money is the medium of exchange. Whatever performs this function, does this work, is money, no matter what it is made of.... That which does the money-work is the money-thing. ”(1.) [If we had no money] the first and most obvious [inconvenience] would be the want of a common measure for values of different sorts. If a tailor had only coats, and wanted to buy bread or a horse, it would be very troublesome to ascertain how much bread he ought to obtain for a coat, or how many coats he should give for a horse. The calculation must be recommenced on different data every time he bartered his coats for a different kind of article, and there could be no current price or regular quotations of value. As it is much easier to compare different lengths by expressing [pg 287]
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 - PDFMonetary Economics
Theories, Evidence and Policy
- David G. Pierce, Peter J. Tysome(Authors)
- 2014(Publication Date)
- Butterworth-Heinemann(Publisher)
Disagreement may exist about both definition and classification, or there may be agreement about one but disagreement about the other. If we turn now to the definition of money we may begin by asking just what is 'the essential nature' of money? One answer is derived from interpreting nature to mean functions, so that money becomes anything that performs the functions of money. Money abstract, we have already seen, performs the function of acting as a unit of account, while money concrete is usually attributed with two functions, those of acting as a means of payment and as a store of value. Attempts have been made to derive definitions of money from both of these functions, with most emphasis being placed on the means of payment function. We shall consider first, however, definitions derived from the store of value role of money before examining the rather more technical means of payment aspect. 10 The functions, advantages and definitions of money Money defíned as a means of payment This brings us now to a consideration of those definitions of money that are based on its means of payment function. These definitions are based on the view that the existence of assets which are close substitutes for money as stores of value, does not destroy the significant difference between the means of payment and other assets. Probably the most common definition of money is that it is anything that is generally acceptable as a means of payment or in final settlement of a debt. Λ means of payment or a medium of exchange? One difficulty with this definition has already been touched upon earUer and is that of distinguishing between a medium of exchange and a means of payment. Some writers have defined the means of payment to be anything that enables goods and services to be acquired without the need to supply other goods and services in exchange.
- G.C. Harcourt(Author)
- 2019(Publication Date)
- Routledge(Publisher)
In a system of this kind it can be shown that the introduction of money would allow disequilibria: see Hino (1974). I doubt the value of this exercise to a wider understanding of the role of money, since it is not at all clear why money should be introduced into a one-good economy, nor that any of the main conclusions would hold in a multi-good economy. 228 Discussion Discussion of the Paper by Dr Goodhart Introducing the paper, Dr Grandmont said that it was partly concerned with the proper definition of 'money'; the starting point of the analysis was that money served as a generalised means of payment. Dr Goodhart distinguished between a means of payment which, when re.ceived by a seller, completed the transaction, and a means of exchange. According to his definition, A medium of exchange includes those assets, or claims, whose transfer to the seller will commonly allow a sale to proceed. The distinction is that when the seller receives a medium of exchange, which is not a means of payment, in return for his sale, he will feel that he still has a valid claim for future payment against the buyer, or even more generally against some other group on whom the buyer has provided him with a claim. Such a definition of the function of money excluded all assets which involved the extension of credit until final payment was completed, such as trade credit, cheques and the like. It led to the natural conclusion that money must include cash and bank demand deposits. Although time deposits might serve as a means of payment, Dr Goodhart proposed to exclude them from the definition of money 'on the grounds that most surveys show a very much higher turnover for current accounts than for time deposits'. Dr Goodhart's analysis of this point was clear and elegant; Dr Grandmont felt, however, that a definition of money had no sound basis when the use to be made of that concept was not specified, and this was not done in the paper.
eBook - PDFEconomic Analysis in Historical Perspective
Butterworths Advanced Economics Texts
- J. Creedy, D.P. O'Brien(Authors)
- 2014(Publication Date)
- Butterworth-Heinemann(Publisher)
In the nineteenth century a similar discussion may be found in J.S. Mill (1848, pp. 483-488). George Warde Norman, an important member of the Currency School, said that money was a sign of value, standard of value, measure of value, in universal demand and formed the medium of exchange 5 The qualities required of money to fulfil this role were those possessed by gold; divisibility, durability, universality of demand and constancy. This approach was carried forward by the successors of the classical economists. Thus Wicksell (1906, trans. 1935, pp. 6-24) referred to money as a measure and store of value and medium of exchange, while Marshall (1923, pp. 12-20) defined the functions of money as acting as a medium of exchange, store of value and standard for deferred payments. The functional approach was carried over by Keynes, who referred to the functions of discharging debt and acting as a unit of account, 6 Monetary economics and by Mises, who stressed the importance of Money as a Medium of Exchange supporting division of labour while following Menger in adding to this the role of money in facilitating credit transactions and acting as a store of value 6 . There has, just as in the modern literature, always been a tendency to dismiss the question of the definition of money as semantic 7 . But underlying the apparent insignificance of the dispute has been the deep-seated issue of monetary control. This explains why the defini-tion of money was most frequently disputed during the era of the monetary control debate in the 1840s and 1850s. This is why it was necessary to identify the functions of money and the means of payment which had the required qualities to perform these functions. In so doing it became possible to identify the strategic area of control. 2.2.2 MONEY AND CREDIT The control rationale comes out particularly clearly in Norman's work.
eBook - PDF- Olli Pyyhtinen(Author)
- 2017(Publication Date)
- Bloomsbury Academic(Publisher)
By mediating subjec-tive valuations and providing the exchanging parties an objective measure of value, money forges a metamorphosis: via money, value becomes an objec-tive, measurable, and reified social fact. Exchangeability is materialized in money. And because money can be used for whatever economic purposes ([1900/7] GSG 6, p. 268, 436), both parties of exchange get a chance to acquire precisely what they desire: while the one receives an object that one aspires, the other receives in exchange what everyone wants – money ([1900/7] GSG 6, p. 388; 2004, p. 292). Money is that which everyone appreciates, because with it one can acquire whatever one desires. Simmel suggests that money is thus ‘the pure form of exchangeability’ ([1900/7] GSG 6, p. 138; 2004, p. 130). It has no meaning outside exchange rela-tions, but its sole purpose is to be passed around, to be exchanged for other objects and measure their value. Money has no significance and value in itself, but only in relation to other objects. Money acts both as a means of exchange and as a measure of value. This makes it ultimately a double, not only in the sense of having a dual role, but also in having two contradictory characteristics. On the one hand, as a means of exchange, it does not remain unaltered through its various uses but pre-sents and preserves its identity only in and via ‘the greatest and most changing variety of equivalents’ ([1900/7] GSG 6, p. 301; 2004, p. 234). Simmel observes the convenience of the expression ‘liquid’ ( flüssig ) money: like a liq-uid, money ‘lacks internal limits and accepts without resistance external limits that are offered by any solid surroundings’ ([1900/7] GSG 6, p. 691; 2004, p. 495). Money is indeed analogous to a fluid, keeping its shape for only a relatively short period of time. What is decisive for money is its flow. It has to circulate and remain in motion in order to function as money: ‘The meaning of money lies in the fact that it will be given away.
No longer available |Learn moreCollected Works of Karl Marx and Friedrich Engels. Illustrated
The Communist Manifesto, The Capital, The Eighteenth Brumaire of Louis Bonaparte, Socialism: Utopian and Scientific
- Karl Marx, Friedrich Engels, N.I. Stone, Edward Aveling, Ernest Untermann, Austin Lewis, N.I. Stone, Edward Aveling, Ernest Untermann, Austin Lewis(Authors)
- 2021(Publication Date)
- Strelbytskyy Multimedia Publishing(Publisher)
Chapter 28. Medium of Circulation and Capital; Views of Tooke and Fullarton
The distinction between currency and capital, as Tooke, Wilson, and others draw it, whereby the differences between medium of circulation as money, as money-capital generally, and as interest-bearing capital (moneyed capital in the English sense) are thrown together pell-mell, comes down to two things.(1)Currency circulates on the one hand as coin (money), so far as it promotes the expenditure of revenue , hence the traffic between the individual consumers and the retail merchants, to which category belong all merchants who sell to the consumers – to the individual consumers as distinct from productive consumers or producers. Here money circulates in the function of coin, although it continually replaces capital. A certain portion of money in a particular country is continually devoted to this function, although this portion consists of perpetually changing individual coins. In so far as money promotes the transfer of capital, however, either as a means of purchase (medium of circulation) or as a means of payment, it is capital. It is, therefore, neither its function as a means of purchase, nor that as a means of payment, which distinguishes it from coin, for it may also act as a means of purchase between one dealer and another so far as they buy from one another in hard cash, and also as a means of payment between dealer and consumer so far as credit is given and the revenue consumed before it is paid. The difference is, therefore, that in the second case this money not only replaces the capital for one side, the seller, but is expended, advanced, by the other side, the buyer, as capital. The difference, then, is in fact that between the money-form of revenue and the money-form of capital, but not that between currency and capital, for a certain quantity of money circulates in the transactions between dealers as well as in the transactions between consumers and dealers. It is, therefore, equally currency in both
No longer available |Learn moreEconomics. Premium Collection. Illustrated
The Wealth of Nations, Capital, The General Theory of Employment, Interest, and Money and others
- Adam Smith, David Ricardo, Karl Marx, Alfred Marshall, John Maynard Keynes(Authors)
- 2021(Publication Date)
- Strelbytskyy Multimedia Publishing(Publisher)
Chapter 28. Medium of Circulation and Capital; Views of Tooke and Fullarton
The distinction between currency and capital, as Tooke, Wilson, and others draw it, whereby the differences between medium of circulation as money, as money-capital generally, and as interest-bearing capital (moneyed capital in the English sense) are thrown together pell-mell, comes down to two things.[1]Currency circulates on the one hand as coin (money), so far as it promotes the expenditure of revenue , hence the traffic between the individual consumers and the retail merchants, to which category belong all merchants who sell to the consumers – to the individual consumers as distinct from productive consumers or producers. Here money circulates in the function of coin, although it continually replaces capital. A certain portion of money in a particular country is continually devoted to this function, although this portion consists of perpetually changing individual coins. In so far as money promotes the transfer of capital, however, either as a means of purchase (medium of circulation) or as a means of payment, it is capital. It is, therefore, neither its function as a means of purchase, nor that as a means of payment, which distinguishes it from coin, for it may also act as a means of purchase between one dealer and another so far as they buy from one another in hard cash, and also as a means of payment between dealer and consumer so far as credit is given and the revenue consumed before it is paid. The difference is, therefore, that in the second case this money not only replaces the capital for one side, the seller, but is expended, advanced, by the other side, the buyer, as capital. The difference, then, is in fact that between the money-form of revenue and the money-form of capital, but not that between currency and capital, for a certain quantity of money circulates in the transactions between dealers as well as in the transactions between consumers and dealers. It is, therefore, equally currency in both
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