Economics · Chapter 7
Study notes aligned to the official NEB syllabus.
Money is anything generally acceptable as a means of payment for goods, services, and debts. As Francis Walker put it, "money is what money does": it is defined by the functions it performs, not the material it is made of. Money grew out of the limits of barter, where exchange needed a "double coincidence of wants". Communities first used commodities such as grain or cattle as money, later replaced by metallic coins and then paper and bank money (cheques, debit and credit cards).
Primary functions: money's wide acceptability makes it a medium of exchange, removing the need for a double coincidence of wants. As a measure of value, it expresses the price of every good in one common unit, so unlike things can be compared directly.
Secondary functions: as a store of value, money can be saved for future use without spoiling. As a standard of deferred payment, it suits loans and wages settled at a future date, since it is durable and widely acceptable. As a means of transfer of value, it lets wealth move between places and people more easily than physical goods.
Contingent functions: money is the basis of credit, since banks accept it as deposits and, on that basis, create further credit. It is the medium for distribution of national income, since wages, rent, interest, and profit are all paid out in monetary form. It gives liquidity and uniformity to wealth, being convertible into any other form almost instantly and providing a common unit for comparing different kinds of wealth. It also helps consumers and producers reach maximum satisfaction and profit, by letting them compare marginal benefit against price.