What is money?

[MtnBiker]

Hmmm, what is money?

[avatar4321]

A unit of value used for commercial transactions.

[MtnBiker]

What determines the value of the unit?

[sgtdmski]

Money is a tool. We use money as a tool of exchange. Money also has value. We assign value to money based upon what we are willing to accept for the work we do, the product we make, the service we seek or the product we buy.

Let me borrow from Ayn Rand:


"Let me give you a tip on a clue to men's characters: the man who damns money has obtained it dishonorably; the man who respects it has earned it."

dmk

[avatar4321]

What determines the value of the unit?

The value is determined by the amount of goods or services people are willing to trade to get it.

[Little-Acorn]

Money (say, a dollar bill) is an IOU for some work you did, or thing you sold, or etc. Basically, it's an IOU that says "You have given me something I value, and I promise to give you something of equal value later."

The dollar bill itself has little value: it's a piece of paper. But the promise behind it, has the value.

[MtnBiker]

I see money as certificate of achievement. A person does something that is of a benefit to his fellow man, as a consequence he earns money. That money is then used as a form of exchange for a product or service he values.

[Little-Acorn]

How did "money" start?

A hypothetical story:

Back before there was money, people did trade, or barter. Trade you this ax for that bag of seed. If you cut my hair neatly, I'll sweep the floor of your shop and clean the windows.

But if a guy came by the barbershop who didn't need a haircut, and the barber still needed the cleaning done, maybe he said to the guy, "Look, you clean up here today, and I'll give you a free haircut in return, a month from now when you need one." And so barter took on a time dimension, too.

That worked fine for a while, but a few years later, the guy cleaned the shop, then came back a month later for his haircut, and the barber didn't remember him. So next time he cleaned the shop, he made the barber write out a note saying "I will cut Jim Smith's hair for free, one time" and sign it. Then the next month when the guy came for his haircut, the barber still didn't remember, but the guy handed him the note and the barber cut his hair. So they did the note thing every time the guy cleaned the shop, and things went fine.

Then at one point, a week after the guy had cleaned the shop and gotten his note promising a haircut, he found he really needed some wood to fix his fence. There was nothing at the lumber yard he could clean up, that being his only talent, and so he was stuck. He offered to trade the barber's note to the lumberjack for the wood he needed, but the lumberjack said, "That note says the barber will cut YOUR hair, not mine. Sorry, it's no good to me."

So the next time the guy cleaned the barbershop, he asked the barber to write a different note, saying, "I will give whoever turns in this note to me, a free haircut." The guy later traded it to the lumberjack and got the wood to fix his fence, and later the lumberjack got a haircut, that he figured was worth about as much as the wood was.

That note from the barber, was the first piece of "money" in history.

And what made it valuable, was that it was a promise from someone, to render a valuable service to the bearer. And it could be traded to other people for goods and/or services. In this, it is no different from today's money.

That story is made up, of course. But it illustrates how "money" first came about.

HTH.

[5stringJeff]

Money is a medium of exchange. However, good money has instrinsic worth. That's why fiat money - i.e. paper money that we use today - is bad money: it has no intrinsic worth. It used to be that you could trade your dollars for gold (or silver) at a federal bank. No more. Dollars have nothing backing it up but the credit of the US government - something that Obama is pissing away.

[Trigg]

money is paper.

It is worth nothing unless backed by gold.

The US was wrong to do away with the gold standard.