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Money has actually taken countless forms v the ages: shells, wheels, beads and even cows. Every forms, though, have always had three points in common. Uncover out what in this eight-minute episode of our economic Lowdown Podcast Series. Friend will likewise learn how commodity money differs from representative money and how both different from today"s fiat money.

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Transcript

Today I"m talking about money.

Money is something that civilization use every day. We earn it and spend it but don"t regularly think much about it. Economists define money as any an excellent that is widely welcomed as final payment for goods and also services. Money has actually taken different forms with the ages; examples incorporate cowry shells in Africa, big stone wheel on the Pacific island of Yap, and also strings the beads dubbed wampum provided by native Americans and also early American settlers. What carry out these creates of money have actually in common? lock share the three functions of money:

First: Money is a save of value. If I work-related today and earn 25 dollars, I can hold on to the money before I spend it due to the fact that it will hold its value until tomorrow, next week, or even next year. In fact, holding money is a much more effective method of storing worth than holding other items of worth such together corn, which could rot. Although the is an reliable store of value, money is not a perfect keep of value. Inflation slowly erodes the purchasing strength of money end time. Second: Money is a unit the account. You deserve to think the money together a yardstick-the maker we usage to measure value in economic transactions. If you are shopping for a brand-new computer, the price can be quoted in terms of t-shirts, bicycles, or corn. So, for instance, your brand-new computer might cost you 100 to 150 bushels that corn at today"s prices, yet you would find it most advantageous if the price were set in regards to money because it is a usual measure that value throughout the economy. Third: Money is a medium of exchange. This method that money is widely welcomed as a method of payment. Once I walk to the grocery store, ns am confident that the cashier will accept mine payment that money. In fact, U.S. Paper money dead this statement: "This keep in mind is legal tender for all debts, public and also private." This method that the U.S. Federal government protects my right to pay v U.S. Dollars.

In bespeak to evaluate the conveniences that money brings to an economy, think around life there is no it. Imagine ns am a musician-a bassoonist in an orchestra-who has actually a automobile that demands to be repaired. In a people without money, ns would need to barter for automobile repair. In fact, ns would need to find a simultaneous of wants-the unlikely case that two world each have actually something the the various other wants in ~ the right time and place to make an exchange. In other words, ns would need to discover a mechanic that would be willing to exchange automobile repairs because that a private bassoon concert by 9 AM tomorrow so I have the right to drive come my following orchestra rehearsal. In an economic situation where human being have very specialized skills, this sort of exchange would certainly take an significant amount of time and effort; in fact, it could be virtually impossible. Money to reduce the expense of this transaction because, when it could be very difficult to find a mechanic that would exchange auto repairs because that bassoon concerts, it is not tough to discover one who would exchange automobile repairs because that money. In fact, there is no money, every transaction would call for me to uncover producers that would exchange their goods and services for bassoon performances. In a money-based economy, I have the right to sell my services as a bassoon player in an orchestra come those who space willing come pay because that orchestra concerts v money. Then, I can take the money ns earn and also pay for a variety of goods and services.

Economists say the the innovation of money belong in the same group as the good inventions of ancient times, such together the wheel and also the skinny plane, but how walk money develop? at an early stage forms the money were regularly commodity money-money that had value due to the fact that it to be made of a substance that had actually value. Instances of commodity money are gold and also silver coins. Yellow coins were beneficial because they could be provided in exchange for other products or services, but likewise because the yellow itself to be valued and also had other uses. Commodity money gave way to the following stage-representative money.

Representative money is a certificate or token that have the right to be exchanged for the basic commodity. For example, instead of moving the yellow commodity money through you, the gold might have been kept in a bank vault and you might lug a document certificate that represents-or was "backed"-by the yellow in the vault. That was understood that the certificate can be redeemed because that gold at any time. Also, the certificate to be easier and safer to bring than the yes, really gold. Over time civilization grew to trust the file certificates as lot as the gold. Representative money brought about the usage of fiat money-the kind used in contemporary economies today.

Fiat money is money that does not have actually intrinsic value and also does not represent an asset in a vault somewhere. The value originates from being claimed "legal tender"-an acceptable kind of payment-by the government of the issuing country. In this case, we accept the value of the money due to the fact that the government says it has actually value and also other people value it sufficient to accept it as payment. Because that example, I accept U.S. Dollars together income since I"m confident ns will have the ability to exchange the dollars because that goods and also services at regional stores. Since I know others will certainly accept it, i am comfortable agree it. U.S. Currency is fiat money. It is no a commodity through its own an excellent value and it go not represent gold-or any kind of other an useful commodity-held in a vault somewhere. That is valued because it is legitimate tender and also people have confidence in its use as money.

There have actually been countless forms that money in history, however some develops have worked better than others since they have qualities that make them more useful. The attributes of money are durability, portability, divisibility, uniformity, limited supply, and also acceptability. Let"s to compare two examples of possible forms of money:

A cow. Cattle have been provided as money at different points in history. A stack of U.S. 20-dollar bills equal to the worth of one cow.

Let"s operation down our list of features to see how they stack up.

Durability. A cow is fairly durable, yet a lengthy trip to sector runs the risk of sickness or fatality for the cow and can severely reduce its value. Twenty-dollar receipt are reasonably durable and can be conveniently replaced if they come to be worn. Even better, a long trip to market does no threaten the health and wellness or worth of the bill. Portability. If the cow is difficult to deliver to the store, the money can be quickly put in mine pocket. Divisibility. A 20-dollar bill can be exchanged for other denominations, speak a 10, a 5, 4 1s, and 4 quarters. A cow, ~ above the various other hand, is not an extremely divisible. Uniformity. Cows come in countless sizes and also shapes and also each has actually a various value; cows are not a very uniform type of money. Twenty-dollar bills space all the exact same size and also shape and value; castle are really uniform. Restricted supply. In order to maintain its value, money must have a restricted supply. If the supply of cows is fairly limited, if castle were offered as money, you can bet ranchers would do their best to boost the it is provided of cows, which would certainly decrease your value. The supply, and therefore the value, that 20-dollar bills—and money in general—are regulated by the commonwealth Reserve so that the money maintain its worth over time. Acceptability. Even though cows have intrinsic value, some people may not accept livestock as money. In contrast, civilization are more than ready to accept 20-dollar bills. In fact, the U.S. Government protects your appropriate to usage U.S. Money to pay her bills.

Well, it seems "udderly" clean at this suggest that—based ~ above the features of money—U.S. 20-dollar bills room a much far better form the money 보다 cattle.

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To summarize, money has taken many forms v the ages, but money consistently has three functions: save of value, unit the account, and also medium the exchange. Contemporary economies use fiat money-money that is neither a commodity nor represented or "backed" through a commodity. Even forms of money that share these duty may be more or less useful based on the qualities of money.

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