What is Money?

What is MONEY? What are its FUNCTIONS? William Stanley Jevons identified four functions of money in his book Money and the Mechanism of Exchange: medium of exchange, common measure of value, standard of value, and store of value. Modern textbooks usually combine the last two functions, and argue that the role of money as a medium of exchange conflicts with its role as a store of value.

1. Medium of exchange:

   Money facilitates exchange of goods and services.

   Avoids inefficiencies of barter systems and "coincidence of wants" issue.

2. Measure of value:

   Money provides a standard unit of measurement for market value.

   Basis for quoting and bargaining of prices, and necessary for efficient accounting systems.

3. Standard of deferred payment:

   Accepted way to settle debts and denominate them in a unit.

   Status of money as legal tender allows for discharge of debts.

4. Store of value:

   Money must be reliably saved, stored, and retrieved to act as a store of value.

   Value of money must remain stable over time, and inflation can diminish its value.

Ben- AKA Waldo

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