Vockermo: September 2014

Friday 12 September 2014

Barter System

The History Of Money: From Barter To Banknotes

Money, in and of itself, is nothing. It can be a shell, a metal coin, or a piece of paper with a historic image on it, but the value that people place on it has nothing to do with the physical value of the money.

Money derives its value by being a medium of exchange, a unit of measurement and a storehouse for wealth. Money allows people to trade goods and services indirectly, understand the price of goods (prices written in dollar and cents correspond with an amount in your wallet) and give us a way to save for larger purchases in the future.

Money is valuable merely because everyone knows everyone else will accept it as a form of payment - so let's take a look at where it has been, how it evolved and how it is used today.

barter_system

A World Without Money

Money, in some form, has been part of human history for at least the last 3,000 years. Before that time, it is assumed that a system of bartering was likely used.

Bartering is a direct trade of goods and services - I'll give you a stone axe if you help me kill a mammoth - but such arrangements take time. You have to find someone who thinks an axe is a fair trade for having to face the 12-foot tusks on a beast that doesn't take kindly to being hunted.

If that didn't work, you would have to alter the deal until someone agreed to the terms. One of the great achievements of money was increasing the speed at which business, whether mammoth slaying or monument building, could be done.

Slowly, a type of prehistoric currency involving easily traded goods like animal skins, salt and weapons developed over the centuries. These traded goods served as the medium of exchange even though the unit values were still negotiable. This system of barter and trade spread across the world, and it still survives today on some parts of the globe.

Money?

What do You Know About Money?

medium_money_exchanged

Money is a good that acts as a medium of exchange in transactions. Classically it is said that money acts as a unit of account, a store of value, and a medium of exchange.

Most authors find that the first two are nonessential properties that follow from the third. In fact, other goods are often better than money at being inter temporal stores of value, since most monies degrade in value over time through inflation or the overthrow of governments.

In other definition, money is any object or verifiable record that is generally accepted as payment for goods and services and repayment of debts in a particular country or socio-economic context.

The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past, a standard of deferred payment. Any kind of object or verifiable record that fulfils these functions can be considered money.

Money is historically an emergent market phenomenon establishing commodity money, but nearly all contemporary money systems are based on fiat money. Fiat money, like any check or note of debt, is without intrinsic use value as a physical commodity.

It derives its value by being declared by a government to be legal tender; that is, it must be accepted as a form of payment within the boundaries of the country, for "all debts, public and private". Such laws in practice cause fiat money to acquire the value of any of the goods and services that it may be traded for within the nation that issues it.

The money supply of a country consists of currency (banknotes and coins) and usually includes bank money (the balance held in checking accounts and savings accounts). Bank money, which consists only of records (mostly computerized in modern banking), forms by far the largest part of broad money in developed countries.