The Concept of Money

“The basic purpose of money has always been to serve as a medium of exchange. In this way money itself can be called a commodity. ”

This world cannot survive without exchange of goods and services. It could do so in the distant past because human needs were limited. Individuals used to produce their own food, clothes and shelter and these were the things needed for the furtherance of human kind.

As the society developed it became increasingly complex and exchange of things became a veritable reality because now everybody was not able to produce everything.

Gradually, a medium of exchange was agreed upon and this medium was called ‘Money’. This medium had different forms and even today we have paper money, coins, credit cards, debit cards and the like.

So, we can say that the basic purpose of money has always been to serve as a medium of exchange. In this way money itself can be called as a commodity.

The basic difference here being that goods usually don’t lend to lose their value with time but money can lose its value to a great extent even within a small span of time.

We have seen this happening in many countries where the money got devalued so much that even millions of bucks of that currency were unable to purchase even a bag of rice.

Even today, in some cases money is not at all required for business and trade. It can be understood by a simple example. If I exchange my rural land with the land of another person who resides in a city, I undertake a business transaction that does not require money at all.

However, we would have to arrive at certain terms and conditions that would facilitate this transaction so that none of us feels being cheated. These formulae can be arrived at without utilizing the concept of money. But such cases are very rare in today’s world.

Again, money may be of supreme importance but it definitely does not constitute our wealth or the wealth of a nation. If such were the case governments would have become richer and richer by just printing loads and loads of money.

So we can say that money is a commodity and a medium of transaction whose value depends to a great extent on the goods that are involved in transactions. Certain economists believe that money has intrinsic value also. However, such thoughts are debatable and philosophical in nature.

Author - DeeKay

Tags - Finance, Economy

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