What money is
What money is
The topic of this video is money. More precisely, what money is!
You, me, everyone, we all use money every day.
We pay for our purchases with money – in the supermarket, in stores, on the Internet.
And although we all use money daily, automatically, probably only a very few of us have a ready answer to the question:
What is money?
Money is a universally accepted medium of exchange
- Thankfully, the answer to this question is short and sweet: Money is the universally accepted medium of exchange.
- Money is the most marketable of goods It’s the thing that can be most easily exchanged for other goods. Money is the most liquid good.
- Money isn’t a consumer good. It isn’t consumed, and it doesn’t vanish when it’s been used. And money also isn’t an industrial good. It isn’t used to make something else.
- Rather, money is a very special kind of good of its own, an exchange good. Money has only one function and that is exchange.
- Money is a great achievement. That becomes very clear when you imagine how exchanges would be made if money weren’t used, as is the case in a barter economy. In a barter economy, goods, products and services have to be directly exchanged against other goods. For example, a person who wants an apple and is ready to trade bread for it has to find someone who has an apple they’d like to exchange for bread. Such an exchange requires a so-called double coincidence. In reality, finding such a match would not only be time-consuming, it might be downright impossible – and then no trade can be done. Using money, the swap is easy. You trade the good you’re ready to give up in exchange for money and then use that money to buy the good that you want.
- The use of money as a medium of exchange greatly expands the exchange possibilities for people. Calculating prices in money makes exchanges easier: It reduces the number of trading relations one would need to know in order to make good decisions about exchanges, and this lowers the cost of trading. In this way, money is a productivity blessing. Without money, the division of labor in our economy would be unthinkable.
- As important as money is for the division of labor and the productivity of an economy, the crucial question must be: How much money does and economy need? And the answer to this question, dear viewers, will be addressed in our next video: What inflation is.
Thanks for joining the Sunflower Foundation’s exploration of money. And please take a look at our next video, too!
Details on Thorsten Polleit
Thorsten Polleit is Chief Economist of Degussa Goldhandel GmbH (www.degussa-goldhandel.de).
Thorsten holds a diploma in economics and was awarded a doctorate in economics from the University of Münster in 1996. In September 2014 he was appointed Honorary Professor for economics at the University of Bayreuth (www.uni-bayreuth.de).
Thorsten Polleit is an Adjunct Scholar of the Ludwig von Mises Institute, Auburn, US Alabama, President of the Ludwig von Mises Institut Deutschland (www.misesde.org) and a founding member of the research network on The Role of Money in the Economy.
His research interests are monetary economics, capital market theory and, in particular, the Austrian School of Economics. His latest books are “Monetary Economics in Global Financial Markets” (2009, Springer, co-authored with Professor Dr. Ansgar Belke, University of Duisburg-Essen), “Ludwig von Mises – Leben und Werk für Einsteiger” (2013, Finanzbuch Verlag) and “Geldreform” (2014, Finanzbuch Verlag).