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'''Money''' is a [[medium of exchange]]. More generally, money is a good which is widely accepted in exchange for other goods. Money has arisen spontaneously in most societies, in their prehistory.
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Historically, a wide variety of goods have been used as money, including cattle, shells, grain, precious metals, and decorated paper.
'''Money''' is a [[medium of exchange]], that is to say an object which is widely accepted in exchange for goods. It provides a cost-saving alternative to the option of the direct exchange (or "barter") of goods for goods.
===Origins and development===


==Medium of exchange==
It may be assumed that money was first adopted in place of barter because it avoids the inconvenience of what has been termed "the search  for a double coincidence of wants" (in order to barter some corn for a pig, for example, it would have been necessary to find someone who had a pig that he did not want, and who also happened to want some  corn). For many centuries the medium of exchange used to avoid the cost of searching for such coincidences was one of a variety of  commodities that had  generally accepted value based upon their scarcity or cost of production - latterly silver or gold. In the course of time  however, commodity money  was gradually  supplanted  by bills of exchange issued by banks, then by banknotes that were exchangeable for commodity money  - and finally, in the 20th century, by ''fiat money'', whose value depends solely upon a government order or "fiat".
Money developed independently in many cultures as economic activity in those cultures became too complex for direct barter. People in those societies would make exchanges using a durable valuable good, accepting quantities beyond that needed for personal or household use, to make future exchanges for other goods with other people. As a society evolves increasing economic complexity and sophistication, the required properties of money would typically lead to the adoption of a semi-precious or precious metal as the medium of exchange.


The properties which make a good suitable as money are:
===Commodity money===
 
The properties which make a commodity suitable as money are:
# Durability. The good must not decay rapidly. The more durable money is, the longer period of time it can be stored for use in deferred consumption.
# Durability. The good must not decay rapidly. The more durable money is, the longer period of time it can be stored for use in deferred consumption.
# Fungibility. One unit or quantity of the good must be very similar to the next. Otherwise, certain units or quantities will be considered more valuable than others.
# Fungibility. One unit or quantity of the good must be very similar to the next. Otherwise, certain units or quantities will be considered more valuable than others.
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# Scarcity. There should not be so much of the good readily available as to make the money value-less.
# Scarcity. There should not be so much of the good readily available as to make the money value-less.


Many items used as money have been defective in one or more of the above criteria: Seed grain is durable, but requires some expense to maintain. Hides and animals are durable over periods of years, but animals require expensive maintenance. Sea shells come in different sizes and sometimes even particular shells of a certain size will have greater aesthetic value than others. Sea shells also lose value when split, resulting in a minimum quantum of money which may be impractically large. In some societies, the shells used for money were so common that large quantities of shells were required for large-value exchanges. Metals, particularly silver and gold, best meet these requirements, and most societies and nations eventually adopted either silver or gold as a medium of exchange.
Metals, particularly silver and gold, best meet these requirements, and most societies eventually adopted either silver or - latterly - gold as a medium of exchange. Various methods were adopted to avoid the cost of transferring large quantities of gold from one person to another. One method was to store gold at banks, and to complete transactions by means of notes to the bank requesting transfers of claims upon gold from one customer to another. Another was the invention of gold-backed currency.  
 
Even gold is not always easily portable for very large transactions.  Methods have been developed to minimize the difficulty of transferring large quantities of gold from one person to another. One method has been to store gold at banks, and to complete transactions by means of notes to the bank requesting transfers of gold from one customer to another. In some cases, the bank would merely make accounting entries, and not actually physically move the gold on deposit. Another was the invention of gold-backed currency. The government of a country would issue notes which were considered [[legal tender]] for debts owed to the government, and which were convertible at offices of the government for a specified amount of gold (or silver, for some countries). This solved the portability problem, but created new problems in its wake. To be successful as a currency, the people had to trust that the government maintained sufficient reserves of precious metal in its treasury to redeem the currency it had issued. Where people lost trust in the government's ability or willingness to redeem the currency in circulation, the currency would trade at a discount to actual quantities of precious metal. Governments also rarely resisted the temptation to increase the issue of currency faster than the increase in the reserves of precious metals, causing [[inflation]].
 
===Unit of account===


===Store of value===
===Fiat money===[[Category:Suggestion Bot Tag]]

Latest revision as of 16:01, 20 September 2024

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Money is a medium of exchange, that is to say an object which is widely accepted in exchange for goods. It provides a cost-saving alternative to the option of the direct exchange (or "barter") of goods for goods.

Origins and development

It may be assumed that money was first adopted in place of barter because it avoids the inconvenience of what has been termed "the search for a double coincidence of wants" (in order to barter some corn for a pig, for example, it would have been necessary to find someone who had a pig that he did not want, and who also happened to want some corn). For many centuries the medium of exchange used to avoid the cost of searching for such coincidences was one of a variety of commodities that had generally accepted value based upon their scarcity or cost of production - latterly silver or gold. In the course of time however, commodity money was gradually supplanted by bills of exchange issued by banks, then by banknotes that were exchangeable for commodity money - and finally, in the 20th century, by fiat money, whose value depends solely upon a government order or "fiat".

Commodity money

The properties which make a commodity suitable as money are:

  1. Durability. The good must not decay rapidly. The more durable money is, the longer period of time it can be stored for use in deferred consumption.
  2. Fungibility. One unit or quantity of the good must be very similar to the next. Otherwise, certain units or quantities will be considered more valuable than others.
  3. Divisibility. People purchase goods of various amounts of value. The minimum practical quantity of money should be low compared to the size of inexpensive purchases. Money should be easily divisible without loss of value.
  4. Portability. Money should be easy to transport from one place to another, in quantities useful in exchange.
  5. Scarcity. There should not be so much of the good readily available as to make the money value-less.

Metals, particularly silver and gold, best meet these requirements, and most societies eventually adopted either silver or - latterly - gold as a medium of exchange. Various methods were adopted to avoid the cost of transferring large quantities of gold from one person to another. One method was to store gold at banks, and to complete transactions by means of notes to the bank requesting transfers of claims upon gold from one customer to another. Another was the invention of gold-backed currency.

===Fiat money===

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