What is the Real Function of Money?

November 14, 2018

Most Americans think about it everyday. Sometimes even, several times a day. It passes easily through our hands. We strive for it; see it on TV and all around us, still yet, we can never seem to get enough of it. The irony of it oddly enough, given all the consideration and value we place on money, we rarely give much thought to the actual origins and purpose of money.

Money stemmed from the inefficiencies of the barter system. This is where a buyer and seller must agree on the same trade of goods. However, we know how difficult coming to that type of agreement can be. Money solved the issues of the barter exchange by serving two main functions.

Money is the medium

The main reason we have money is to use it as a medium of exchange to pay for things we buy, as well as for services we use. All merchants accept money, so money frees us from the primary issue in the barter system: finding someone who wants to buy exactly what you’re selling, at the exact time you’re selling it. With money, we can buy and sell things anytime, because we can hold onto and grow the cash we have, then buy what we need when we’re ready.

Money is also a measuring rod of value. Without money, it would be nearly impossible to pay for the services of doctors and lawyers, or even something as basic as food and shelter, to name a few. With money as a medium, professionals can simply charge a fee for their services, and we, the consumer, can simply pay the asking price. Most of the things we buy do not have the same size, shape, quality or material, making it tough to set equal value for things. Thank goodness we have money to solve that problem for us.

Transactional ease

Money comes in many forms, one of them being credit. This allows us to obtain an item or service now, but pay for it later. Many of the transactions that we make daily do not settle instantly. Meaning, that although we are paying with credit, the merchant does not receive the cash instantly, there is often a settlement period that they must wait.. Nevertheless, the money is available to the merchant ‘at the end of the day.’

Money offers us a considerable amount of freedom to do business, pay for goods and services, and make our daily transactions simple. The future of money will certainly be digital for its ease and security, but money will exist in some form forever.

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