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

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Transcript

Today I\"m talking about money.Money is miscellaneous that people use every day. Us earn it and spend it but don\"t often think much around it. Economists specify money together any good that is widely welcomed as final payment because that goods and also services. Money has actually taken various forms with the ages; examples encompass cowry shells in Africa, large stone wheels on the Pacific island of Yap, and strings the beads called wampum used by indigenous Americans and also early American settlers. What execute these creates of money have actually in common? they share the three attributes of money: First: Money is a store of value. If I occupational today and also earn 25 dollars, I deserve to hold on to the money before I spend it due to the fact that it will host its value until tomorrow, following week, or also next year. In fact, holding money is a much more effective way of storing worth than holding other items of worth such as corn, which could rot. Although that is an reliable store of value, money is no a perfect store of value. Inflation progressively erodes the purchasing strength of money end time. Second: Money is a unit of account. You deserve to think that money together a yardstick-the an equipment we usage to measure value in economic transactions. If you room shopping because that a brand-new computer, the price can be quoted in regards to t-shirts, bicycles, or corn. So, for instance, your new computer might expense you 100 to 150 bushels the corn at today\"s prices, but you would discover it most beneficial if the price were set in terms of money because it is a common measure of value across the economy. Third: Money is a medium of exchange. This way that money is widely embraced as a technique of payment. When I walk to the grocery store, i am confident that the cashier will certainly accept my payment of money. In fact, U.S. Document money dead this statement: \"This note is legal tender for every debts, public and private.\" This means that the U.S. Federal government protects my best to pay through U.S. Dollars.In bespeak to appreciate the conveniences that money bring to an economy, think around life without it. Imagine i am a musician-a bassoonist in an orchestra-who has a vehicle that needs to it is in repaired. In a human being without money, ns would have to barter for vehicle repair. In fact, i would need to discover a coincidence of wants-the unlikely situation that two civilization each have something the the various other wants in ~ the right time and also place to do an exchange. In various other words, i would require to uncover a mechanic that would be ready to exchange auto repairs because that a private bassoon concert by 9 AM tomorrow so I can drive come my following orchestra rehearsal. In an economy where civilization have very dedicated skills, this kind of exchange would take an significant amount of time and also effort; in fact, it can be virtually impossible. Money reduce the expense of this transaction because, while it might be very an overwhelming to find a mechanic who would exchange car repairs because that bassoon concerts, that is not tough to uncover one who would exchange auto repairs because that money. In fact, without money, every transaction would call for me to discover producers that would exchange their goods and also services because that 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 through money. Then, I deserve to take the money ns earn and pay for a variety of goods and services.Economists say the the innovation of money belonging in the same group as the great inventions of old times, such as the wheel and also the lean plane, however how walk money develop? at an early stage forms of money were regularly commodity money-money that had value because it to be made of a substance that had value. Instances of commodity money room gold and silver coins. Yellow coins were beneficial because they might be used in exchange for other items or services, but likewise because the gold itself to be valued and had various other uses. Commodity money gave method to the next stage-representative money.Representative money is a certificate or token that can be exchanged for the underlying commodity. Because that example, instead of transferring the yellow commodity money v you, the gold could have been maintained in a bank vault and also you might carry a file certificate the represents-or to be \"backed\"-by the gold in the vault. It was understood that the certificate could be redeemed for gold at any kind of time. Also, the certificate to be easier and also safer to lug than the actual gold. End time world grew to trust the paper certificates as much as the gold. Representative money resulted in the usage of fiat money-the form used in modern economies today.Fiat money is money the does not have actually intrinsic value and does not represent an asset in a vault somewhere. That is value comes from being claimed \"legal tender\"-an acceptable form of payment-by the government of the issuing country. In this case, we accept the worth of the money because the federal government says it has actually value and also other civilization value it sufficient to expropriate it as payment. Because that example, I expropriate U.S. Dollars as income since I\"m confident ns will have the ability to exchange the dollars for goods and also services at local stores. Due to the fact that I know others will certainly accept it, ns am comfortable accepting it. U.S. Currency is fiat money. The is not a commodity v its own great value and also it does not stand for gold-or any type of other an useful commodity-held in a vault somewhere. It is valued due to the fact that it is legit tender and people have faith in its usage as money.There have been numerous forms that money in history, yet some creates have worked better than others because they have qualities that do them more useful. The qualities of money room durability, portability, divisibility, uniformity, restricted supply, and also acceptability. Let\"s compare two examples of feasible forms the money: A cow. Livestock have been provided as money at different points in history. A stack of U.S. 20-dollar bills same to the value of one cow.Let\"s run down our perform of characteristics to see how they stack up. Durability. A cow is fairly durable, but a long trip to market runs the hazard of sickness or death for the cow and can severely minimize its value. Twenty-dollar receipt are reasonably durable and also can be easily replaced if they end up being worn. Also better, a lengthy trip to sector does not threaten the wellness or worth of the bill. Portability. When the cow is an overwhelming to deliver to the store, the currency can be quickly put in mine pocket. Divisibility. A 20-dollar bill deserve to be exchanged for other denominations, to speak a 10, a 5, four 1s, and 4 quarters. A cow, ~ above the other hand, is not really divisible. Uniformity. Cows come in many sizes and shapes and also each has a different value; cows are not a really uniform type of money. Twenty-dollar bills room all the exact same size and shape and value; castle are very uniform. Minimal supply. In bespeak to maintain its value, money must have actually a restricted supply. If the it is provided of cows is reasonably limited, if they were offered as money, you deserve to bet ranchers would execute their finest to increase the supply of cows, which would decrease your value. The supply, and also therefore the value, the 20-dollar bills—and money in general—are regulated by the federal Reserve so the the money retains its value over time. Acceptability. Even though cows have actually intrinsic value, some people may not accept cattle as money. In contrast, civilization are an ext than ready to expropriate 20-dollar bills. In fact, the U.S. Federal government protects your best to use U.S. Currency to pay her bills.Well, it seems \"udderly\" clean at this suggest that—based ~ above the attributes of money—U.S. 20-dollar bills are a much better form the money 보다 cattle.To summarize, money has taken numerous forms v the ages, but money consistently has three functions: store of value, unit the account, and also medium that exchange. Contemporary economies use fiat money-money that is no a commodity nor represented or \"backed\" through a commodity.

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Even forms of money that share these function may be much more or much less useful based on the features of money.