CheckPoint: Money

A function of money that serves as a unit of account is money served as a common item in which the prices of all goods and services can be set. If a person wants a computer, he or she doesn’t have to calculate how many loaves of bread will be necessary in order to buy it, how many painted houses, how many rocking chairs, how many rakes, or how many taxi rides. Instead of setting millions of prices for a television in terms of all other goods and services produced, one price is set. And the prices of all other goods and services are set in the same unit of account. Another function money can serve is as a store of value. Rather than using money for spending today, you can store or save it for use in the future. If what we use as money is going to serve as a store of value, this can further limit what can serve as money. For example, suppose your income was paid in apples, but you didn’t want to spend all your income right away; you wanted to save some of it to spend later. You’re going to have some difficulty saving some of your “apple income.” The apples will eventually rot, and no one is going to want rotten apples. And you don’t want this to happen to your money. You don’t want it to lose its acceptability because you saved it. Medium of exchange is another function of money; everything from playing cards to shells to furs to gold. For one reason or another, these items became acceptable in some societies as forms of payment for goods and services. As soon as anything is readily accepted in a society as money, it can serve as a medium of exchange. That is the most important criterion for anything to serve as money—it must be readily acceptable.