What Is Money

 

The biggest mistake that anyone can make is to not truly research the process to reach a goal. Even I am guilty of this, reaching for a goal that I am not sure I truly understand. So let's get to the big question before going further into the depths of financial literacy.

What Is Money?

“Money is a commodity accepted by general consent as a medium of economic exchange.”

But let's break that down ever further, to have a fully rounded understanding of what the definition of money actually is. There are key words to look at in this definition, such as: commodity, medium, exchange.

Terminology:

Commodity is defined as: 

• "Commodities are goods or raw materials that can be bought, sold, or traded." (Master Class)

Medium: (In the form of an exchange) 

• Is “something commonly accepted in exchange for goods and services and recognized as representing a standard of value” (Merriamwebster) 
• Is “A medium of exchange is an element of standardized value used to settle the exchange of a given item. In other words, it is an instrument that facilitates the trade of goods and services.” (MyAccountingCourse)
•  “The main requirement for an instrument to become an accepted medium of exchange is an intrinsic collective agreement of its value and reliability.”(MyAccountingCourse)
•  “A medium of exchange must have a reliable valuation and in modern day society, it must be easily interchangeable.” (MyAccountingCourse)

• “It is the medium in which prices and values are expressed; as currency, it circulates anonymously from person to person and country to country, thus facilitating trade, and it is the principal measure of wealth.” (Britannica)

Terminology: 

Currency is defined a

• “in industrialized nations, portion of the national money supply, consisting of bank notes and government-issued paper money and coins, that does not require endorsement in serving as a medium of exchange; among less developed societies, currency encompasses a wide diversity of items (e.g., livestock, stone carvings, tobacco) used as exchange media as well as signs of value or wealth.”(Britannica)

Fun Fact:

    “Since the abandonment of the gold standard in the 1930s, governments have not been obligated to repay the holders of currency in any form of precious metal. Consequently the volume of currency is determined by the actions of the government or central bank and not by the supply of precious metals.”(Britannica)

Exchange and Trade defined as

• "The words “exchange” and “trade” refer to the same activity–people who have one thing and want a different thing can exchange or trade it voluntarily with each other. " (EconLib)
• "The word “exchange” tends to emphasize trades within a single country or locale. The word “trade” tends to emphasize international aspects." (EconLib)
• "Regardless, the activity of exchanging or trading is the same, whether it is with your neighbor or someone living clear across the world." (EconLib)

Summary:

So the answer to what is money... From my perspective is a product of a trade, where both sides understand the value of the trade is agreed upon. For example, I can trade my time and labor for a paycheck where there is an agreed upon value that I will receive. 

See once we start to realize that there is a trade happening, it is no longer about the bi-product that is money. But a questioning of value.