Thursday, 1 November 2012

Economists Believe That Money Fulfills Three Main Functions

It is clear what money does, but its origins remain somewhat of a mystery, to many. Some argue that money has its roots in the power of the state. Others claim that the origin of money is a private business matter, and would exist even if governments did not.

In economic theory, money fulfills three main functions.

  • First, it must be a medium of exchange, easily traded for goods and services.
  • Second, it must be a store of value, so that it can be saved and used for consumption in the future.
  • Third, it must be a unit of account, a useful measuring-stick. Lots of things can do these jobs. Tea, salt and cattle have all been used as money.

It is believed by some economists that the monetizing of an economy begins, when agricultural communities move away from subsistence farming, and start to specialize. This brings about positive gains, but means that trade with others, becomes necessary in order to profit from surpluses. As you would expect, this is best accomplished, using money.


  1. The only thing that matters to anyone who is holding any amount of money is how much is it inevitably worth and what can they buy with it in the market. The problem is the markets are changing so much these days it’s difficult for any global currency to stay at a particular level rate for any period of time.

  2. Some in the developed world would say that a dollar doesn’t buy what it used to while people in the underdeveloped regions of the world would say a cow or a pig doesn’t buy as much fish or vegetables as they once did. The term “money” ultimately is a relevant term depending on where you live in the world.

  3. Money is basically a medium of exchange when it comes to trade. The value of any amount money in any particular transaction is determined, in reality, only once the value of the goods or services is established between the buyer and the seller. This is why it’s so difficult for global currencies to maintain constant levels. The prices of everything in the global markets are constantly changing based on supply and demand.

    1. Money can be earned, saved, spent and invested. The best thing for anyone to do with their money is to spend it wisely to get as much value in return for it as they can. Especially when it comes to investing.