Everyone deals with money on a daily basis. People often complain “I don’t have enough money”, “I don’t have any money” and more rarely “I have to much money”. Money is such a big deal, as without it we couldn’t survive. Money is often linked to the state of a person’s happiness, however I don’t subscribe to this school of thought.
Money generally has four important characteristics:
- It acts as a medium of exchange.
- It is a unit of account.
- It is a store of value.
- It offers a standard of deferred payment.
Put most simply money is anything that can be exchanged for goods and services. This is referred to as a medium of exchange. In times of high inflation in Russia cigarettes and Vodka were used as a medium of exchange.
Vodka as money
It is widely understood that there are five criteria that needs to be met to ensure a good as suitable to be used as money.
- The good has to be acceptable to most traders.
- It should have a standardized quality.
- It should be durable.
- It should be valuable relative to its weight.
- It should be divisible.
Vodka meets all but one of these criteria. In order to purchase a house there would be significant cost in transfer of the vodka from buyer to seller. All things considered Vodka meets these requirements fairly well.
Paying the man
By now you should have a good understanding about the Fundamentals behind the concept of money. Money makes transactions in the economy more efficient.
The use of money to facilitate a trade or exchange is referred to as a payment system. As with anything payment systems have evolved over time. From precious metals to currency, checks and credit to electronic money.
