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1. Functions of money

Money is and remains one of the major themes when striving to reach a world with more freedom and equality; a world where people cooperate more and better and share prosperity. Understanding what money is, how it works and how it could work better, might be a very important step towards that world. In a series of short blogs, we will look at some important aspects of money. Your comments are more than welcome!

 

Money is perhaps mankind’s greatest invention. Imagine that money would not exist: society as we know it, would immediately collapse. Economic activity would come to a standstill, people would stop going to work, in shops you would not be able to pay with money.

 

Money as a medium of exchange enables economic productivity, serves as compensation for the result of people’s work and is virtually indispensable when selling or buying products.

Also, money makes it possible to assign value to products (economic goods) and therefore makes it possible to determine the value ratios of products compared to each other. Money is the unit of account in which we express value.

 

A third function of money is that it is used to store value. A farmer’s harvest is perishable and will sooner or later decay and have no value anymore. But if the farmer sells his crop, exchanges it for money, the value remains (under normal economic conditions) and can be "stored" until he wants to exchange the value for things he wants to buy.

 

Money serves as a medium of exchange , as unit of account and as a means to preserve value. These functions are necessary: there must be something that can serve as a means of exchange, as unit of account to express value and as a means to preserve value.

 

In this sense, money might be the greatest invention ever made by mankind, and something we can’t live without.

 

But do we therefore know what money really is???

 

John Hogervorst

April 2014


John  |  2014 04 01  |  Permalink  |  Share

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