Money: A Measurement of Exchange
Money is an intangible form of measurement in exchange for goods and/or services. It is a medium of exchange that is commonly accepted as compensation for goods and services, and it is a way of introducing value into an economy. Money provides a common measure of value – it helps to determine the value of goods and services relative to each other and aids in the comparison of prices.
The origin of money is thought to stem back thousands of years, though it once had entirely different forms. Many historians believe the first form of money appeared in the form of cowrie shells or perhaps even as early as metal coins or ingots. Over time, this primitive form of money was replaced with coins made from a metal or combination of metals (often gold and silver). Eventually, metal coins were replaced with paper money. While the form of money has changed over time, one thing has remained constant – money as a form of measurement has been essential to allow for trade in every society.
In order to help with the measurement of goods and services, money acts as an intermediary between two parties in a transaction. Money is attractive to both parties since it diminishes the need for bartering which is a process where goods or services are exchanged for other goods or services. Money provides each party with a degree of certainty that the goods or services will be provided due to the specific monetary amount associated with the transaction. It also serves to ensure that a fair trade is taking place as the standard of value — the money — is agreed upon beforehand.
In addition to its function as a tool for measuring goods and services, money is also accepted as a store of wealth and as a medium of exchange. Money gives people the ability to save and access their wealth at any time. It is accepted as a medium of exchange in all societies, and it can provide people with a feeling of power— the more money someone has, the more control they have over the goods and services that money may purchase. Wealth gives people a greater degree of freedom and control over their lives.
Finally, money also has an important psychological impact. It allows people to move away from the concept of bartering, which is far more complex and can be seen as a demeaning form of comparison and trade. Money also allows individuals to measure the worth and value of their goods and services because it serves as an efficient unit of measurement. Money creates status and often creates divisions between people of different socioeconomic levels due to the varying amounts of money people may possess.
Money is an intangible but extremely important form of exchange, measurement and medium of wealth. It has been an integral part of trade for centuries, even in the form of cowrie shells. While it is not tangible, it does have a real effect on goods and services, wealth and even psychological well-being. Its history and importance in the development of economies, as well as its ability to measure the worth of goods and services, ensures money will remain as a measure of exchange for centuries to come.
