LooseChange (24902)

I like to think that in each of our hearts there's a little Mr. Crab screaming "Money money money money money money!" every time we pass by a crumbled dollar bill, a quarter or even a penny. At the least, I know that this much is true for myself; I'm guilty of eyeing open wallets and the occasional loose change. For others, the voice may be much gentler.

Yet no one can deny that we tend to seek more money in general for different reasons without taking the time to know what it really is, which is a shame considering this economy and the amount of effort we place in acquiring it. Make no mistake; like anything else money is a serious investment of your precious resources that warrants your scrutiny. Otherwise why bother earning it at all?

If you are curious about the stuff in your pocket, I invite you to read onward. You might discover a new perspective you never had before.

What Is Money?

This can be a somewhat difficult question. From practical experience, most of us can agree that money is that which can be traded for most every good, debt or service in a market. Simply put, it is a medium of exchange.

However, did you know that anything can constitute as money in an economic system? Look around and you may spot children using candy as money between themselves, or card collectors trading basic card types for other more exotic versions. Pick up a History book, and you may also read that at one point in ancient China copper knives were traded as currency, whereas for meso-American civilizations coffee beans were highly prized.

Generally speaking, if it's collected in mass quantities for the sake of trading it anytime and anywhere then chances are that it's money. Of course, it's only money if most people you know are willing to buy it!

Who First Discovered Money?

Money historically evolved from bartering, making efforts to trace its origins extremely difficult. For now its beginnings remain as mysterious as whomever first created fire or invented the wheel.

Ideal Properties of Money

Given how anything can be money under the right circumstances, there are particular qualities that make certain kinds more attractive than others:

1) Divisibility- Can be easily cut, added, and measured at any fraction to match a certain price.

2) Valuable non-monetary uses- Has special properties that make it useful in the production processes of other items.

3) Durability- Does not easily lose its physical integrity over time.

4) Scarcity- Is not too plentiful nor too rare to acquire from natural resources.

5) Portability- Its storage does not pose a challenge or threat to other forms of wealth, and can be shaped to fit any container.

Having revewied these five major elements, it's no surprise why gold and silver have been popular monies for thousands of years. Both metals share in all of the ideal traits, and their only major differences are in their rarity and usefulness. Although no longer in common use among citizens of most developed nations, it's difficult to say whether both currencies are truly dead. Given their history and continued use in some official coins, there's a good chance that we may see their revival sometime in the future.

DummyCoins (24882)

(Not every currency is perfect. Take these fake 1-oz aluminum coins of yours truly for example: What was once a precious metal before the late 1800s can now get you, at best, a pack of bubblegum per pound.)

Why Money Is Essential For Economic Life

Simply treating money as a "medium of exchange" does not do it justice in demonstrating its vast importance to society. Imagine, if you will, a world without money:

1) Business would be blind- Without a reliable common denominator between differing sorts of wealth, there would be little to tell whether you were richer or poorer than your neighbor. Simply measuring how much "stuff" you have wouldn't be enough; you can always have a lot of nothing.

2) Trading collapses- Unless everyone became one hive-mind in a hurry, we would be at the mercy of what economists call "the lack of coincidence of wants" as we struggled to exchange anything at all. Customer service gets a whole lot nastier.

3) Production comes to a crawl- In a world without any efficient means of trade, the factories and production lines that require readily available inputs would be dead. Things get boring fast.

4) Humanity devolves into barbarianism- While a few traders may still exist, most people would eventually realize new and exciting careers in plundering. Post-apocalypse here we come!

Market Money Versus Government Money

Depending on your geographical location, you may be restricted into using only a set of officially-prescribed monies whether by direct decree or through indirect legal rules that give one money legal advantages over another in the marketplace. Such mandates are called "legal tender laws". Here are a few examples for those of us living in the United States:

§ 5103. Legal tender
United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts.

§ 486. Uttering coins of gold, silver or other metal
Whoever, except as authorized by law, makes or utters or passes, or attempts to utter or pass, any coins of gold or silver or other metal, or alloys of metals, intended for use as current money, whether in the resemblance of coins of the United States or of foreign countries, or of original design, shall be fined under this title [1] or imprisoned not more than five years, or both.

(Source: U.S. Code)

"Is this a good thing?"

That is a subject of hot debate between many economists. In a nutshell, the disagreement is over whether government interference in market processes is beneficial or not. Should people decide for themselves what is money for their business, or should governments decide for them? Even though I have my own positions on the matter, I will leave it up to you to think for yourself what ought to be the case.

Moving Forward

Now that you've taken the time to know the basics of money, I hope you later embark on the journey of knowing it even further. Besides just helping you be a more successful entrepreneur, appreciating how money works also helps you see how amazing civilization actually is. There's a lot of great History behind money, and it grows every time you trade it with a stranger. It's the ultimate means to a peaceful end.