Money has taken plenty of forms v the ages: shells, wheels, beads and even cows. All forms, though, have always had three points in common. Uncover out what in this eight-minute episode of our economic Lowdown Podcast Series. You will additionally learn how commodity money different from representative money and also how both differ from today"s fiat money.
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TranscriptToday I"m talking around money.Money is other that human being use every day. We earn it and also spend it yet don"t often think much around it. Economists specify money together any great that is widely embraced as last payment because that goods and also services. Money has actually taken various forms through the ages; examples encompass cowry shells in Africa, huge stone wheel on the Pacific island that Yap, and also strings the beads called wampum provided by aboriginal Americans and also early American settlers. What execute these forms of money have in common? lock share the three features of money: First: Money is a store of value. If I occupational today and also earn 25 dollars, I deserve to hold on to the money before I spend it because it will hold its value until tomorrow, following week, or even next year. In fact, holding money is a much more effective method of storing worth than holding various other items of value such as corn, which can rot. Although the is an efficient store the value, money is not a perfect store of value. Inflation gradually erodes the purchasing strength of money over time. Second: Money is a unit the account. You deserve to think the money together a yardstick-the maker we usage to measure value in financial transactions. If you room shopping for a new computer, the price can be quoted in regards to t-shirts, bicycles, or corn. So, for instance, your brand-new computer might expense you 100 come 150 bushels the corn in ~ today"s prices, however you would find it most helpful if the price were set in regards to money because it is a common measure that value throughout the economy. Third: Money is a medium of exchange. This method that money is widely accepted as a technique of payment. When I go to the grocery store, i am confident the the cashier will certainly accept mine payment the money. In fact, U.S. Paper money carries this statement: "This keep in mind is legal tender for all debts, public and private." This way that the U.S. Federal government protects my ideal to pay with U.S. Dollars.In bespeak to evaluate the conveniences the money bring to one economy, think around life there is no it. Imagine ns am a musician-a bassoonist in one orchestra-who has a automobile that needs to be repaired. In a human being without money, ns would need to barter for vehicle repair. In fact, i would require to find a simultaneous of wants-the unlikely instance that two world each have something the the other wants at the best time and also place to make an exchange. In various other words, i would require to discover a mechanic who would be ready to exchange vehicle repairs for a personal bassoon concert through 9 AM morning so I deserve to drive to my next orchestra rehearsal. In an economy where people have very specialized skills, this sort of exchange would certainly take an incredible amount that time and effort; in fact, it might be almost impossible. Money to reduce the cost of this transaction because, while it might be very difficult to find a mechanic who would exchange automobile repairs for bassoon concerts, the is not difficult to uncover one that would exchange car repairs for money. In fact, without money, every transaction would call for me to uncover producers who would exchange your goods and also services because that bassoon performances. In a money-based economy, I can sell my solutions as a bassoon player in an orchestra to those who are willing to pay for orchestra concerts with money. Then, I have the right to take the money ns earn and pay because that a selection of goods and also services.Economists say the the innovation of money belonging in the same category as the an excellent inventions of ancient times, such as the wheel and the lean plane, yet how did money develop? early on forms the money were frequently commodity money-money that had actually value due to the fact that it was made of a problem that had value. Examples of commodity money room gold and silver coins. Yellow coins were valuable because they could be used in exchange because that other items or services, but likewise because the yellow itself was valued and also had other uses. Commodity money gave method to the next stage-representative money.Representative money is a certificate or token that can be exchanged because that the underlying commodity. For example, rather of transporting the yellow commodity money through you, the gold might have been kept in a financial institution vault and also you might carry a paper certificate that represents-or was "backed"-by the yellow in the vault. That was interpreted that the certificate could be redeemed because that gold at any type of time. Also, the certificate was easier and safer to lug than the really gold. Over time civilization grew to to trust the record certificates as lot as the gold. Representative money caused the usage of fiat money-the type used in contemporary economies today.Fiat money is money the does not have actually intrinsic value and does not stand for an asset in a vault somewhere. That is value comes from being declared "legal tender"-an acceptable form of payment-by the government of the issuing country. In this case, we expropriate the value of the money since the federal government says it has actually value and other people value it sufficient to expropriate it as payment. Because that example, I expropriate U.S. Dollars together income since I"m confident ns will be able to exchange the dollars because that goods and services at local stores. Because I know others will certainly accept it, i am comfortable accepting it. U.S. Money is fiat money. That is not a commodity v its own great value and also it does not represent gold-or any other beneficial commodity-held in a vault somewhere. That is valued due to the fact that it is legal tender and also people have confidence in its use as money.There have been countless forms of money in history, but some develops have worked far better than others since they have attributes that do them much more useful. The features of money room durability, portability, divisibility, uniformity, limited supply, and acceptability. Let"s compare two examples of possible forms the money: A cow. Cattle have been offered as money at various points in history. A ridge of U.S. 20-dollar bills equal to the value of one cow.Let"s operation down our list of characteristics to see how they stack up. Durability. A cow is reasonably durable, but a long trip to industry runs the danger of sickness or death for the cow and can severely reduce its value. Twenty-dollar receipt are fairly durable and can be easily replaced if they end up being worn. Also better, a long trip to sector does not threaten the health and wellness or value of the bill. Portability. When the cow is challenging to carry to the store, the money can be conveniently put in mine pocket. Divisibility. A 20-dollar bill can be exchanged for other denominations, say a 10, a 5, 4 1s, and 4 quarters. A cow, ~ above the other hand, is not an extremely divisible. Uniformity. Cows come in countless sizes and also shapes and also each has actually a various value; cows are not a very uniform form of money. Twenty-dollar bills space all the same size and also shape and value; lock are very uniform. Minimal supply. In order to preserve its value, money must have a minimal supply. While the supply of cows is fairly limited, if lock were supplied as money, you have the right to bet ranchers would do their best to rise the supply of cows, which would certainly decrease your value. The supply, and also therefore the value, of 20-dollar bills—and money in general—are regulation by the commonwealth Reserve so that the money maintain its value over time. Acceptability. Also though cows have intrinsic value, some world may not accept cattle as money. In contrast, people are an ext than willing to accept 20-dollar bills. In fact, the U.S. Government protects your appropriate to usage U.S. Currency to pay your bills.Well, it appears "udderly" clean at this suggest that—based ~ above the attributes of money—U.S. 20-dollar bills are a much much better form the money 보다 cattle.To summarize, money has actually taken plenty of forms with the ages, but money consistently has actually three functions: save of value, unit the account, and also medium the exchange. Contemporary economies use fiat money-money that is no a commodity nor stood for or "backed" by a commodity.
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Even forms the money that share these function may be more or much less useful based on the features of money.