Here's a whole site on the subject:
financeservices.about.com
Definition of Money
For a simple five letter word, money has certainly
gathered a lot of baggage over the ages. It's been called
the root of all evil, yet is also said to make the world go
round. It's blamed for relationship problems, from fights
between domestic partners to wars between nations.
We spend a large portion of our lives earning it, spending
it, managing it, and probably too much time worrying
about it. There are debates about the legality and
constitutionality of money, as well as how much or how
little it should be regulated and who should have how
much.
As we can see from the many quotes about it (see Page 1), we don't
often discuss what money actually IS, rather what it does or does not
do. Even WWWebster describes functions: something generally
accepted as a medium of exchange, a measure of value, or a means
of payment rather than what money actually is. This is because the
forms of money have changed through time and continue to change with
the growth of e-money, but the functions have remained the same.
Money is a medium of exchange. This simply means if you
can use it to buy or otherwise obtain goods or services that you
need or want, it's money. The simplest form of exchange is barter,
where people or companies trade goods or services of roughly
equivalent value with no money changing hands. When barter is
inconvenient, an object may be used to represent value. That object is
money! It has been many things: grain; cattle; shells; salt; precious
stones and metals; pieces of paper; and bits and bytes of data stored on
a computer or a smart card. The only requirement for this function is
that the two (or more) parties accept the value represented by the
object, and use that object to buy and sell goods and services.
Money is a standard of measurement or measure of value.
This is the function that can result in confusion about the legality
of money relative to gold, silver or other standards that have been used
at times throughout history. Currency and coin may be based on any
commodity with intrinsic value and coins may be worth the value of the
metals used to mint them. There's no requirement that this be so. This
function of money only means that we use money to express what
something is worth, such as that car is worth $20,000 or a candy bar
costs $0.50. In Japan the car and the candy bar would be worth so
many yen. In England the measurement would be in pounds, and so on
around the world. IF our standard of measurement were candy bars,
then we would say the car is worth 40,000 of them! Candy bars might
not be a practical form of money. The point is that they could be money
if they were used as a standard to measure the value of other goods and
services.
Money is a means of payment. This function is very similar to
medium of exchange, and they are often joined in definitions.
There is a fine distinction in that money as a means of payment can be
one step removed from the actual exchange for goods and services. If
we buy something with a credit card, the money available to borrow is
the medium of exchange. When we write a check or authorize an
online transfer of funds to make the payment to the credit card issuer
we've used money in its payment form. When a form of money is
described as legal tender it is referring to this function of money,
meaning that the currency, coin, or other form can be used to pay debts
and taxes.
Money is a store of value or wealth. This function results
from the belief or trust that the form of money will retain value
over time. Forms of money that have intrinsic value, such as gold, silver,
salt or cattle, are easier to understand because they are tangible. It's
important to note that these items can fluctuate in value, however, just as
inflation can reduce the value of currencies that are not based on
something with intrinsic value or book entry or electronic accounts that
have no tangible form at all. |
