What is Money?

What is Money?

Money is a universal force that makes the world go round. It has the power to transform dreams into realities and to influence markets and nations. The ultimate objective of money is to serve man’s need for wealth, without creating unnecessary inflation or excessive risk. The value of money is determined by human needs.


For the purpose of discussion, let us assume that money is a biological fact or instinct that is universally shared among human beings. Money would assume an important place in our lives. In this economic system money would be a commodity that is produced by physical activities in the market and that can be both consumed and saved. Let us also assume that money is a social purpose associated with the production of culture, art, architecture and other social purposes.

So, what would be the nature of money as a medium of exchange? In fact money acts as a medium of exchange only between two parties. In this process the buyer exchanges his physical commodity for a certain amount of money demanded by the seller. Money acts as a commodity, because it is a scarce and not easy to produce resource. If we try to compare the functioning of money with that of gold or silver or any other precious metals, we will find that money plays an insignificant role in determining value and that the price of commodities. This means that money as a medium of exchange does not have any social purposes.

What is money then? Money is a commodity money so as to act as a medium of exchange in between various products. Thus, money is the exchange value between commodities such as food grains, fish and other agricultural products and monetary payments between persons on personal terms. As we see money is a rather non-specific and non-commodity based medium of exchange. This means that money is a deferred payment that enables the transfer of goods between buyers and sellers on the acceptance of the payment rather than on the production and delivery of the goods.

We can see that money is merely a commodity that facilitates the exchange of goods between persons. But what is the money supposed to accomplish? Money is supposed to facilitate exchange because it is the formal or recognized means of exchanging commodities between persons on commodity-prices determined by the market makers. It facilitates exchange only between parties on the basis of value and it facilitates exchange only because it is a transaction-efficient and cost-efficient medium of exchange. Money is supposed to serve all these purposes because exchange is not a spontaneous process but is the product of a human mind that is directed towards the satisfaction of some ends that cannot be realized instantly.

In this way, money is the form of deferred exchange that ensures safety and security of the money owners. This is achieved through its use-value and through the operation of its purchasing power on the market. The value of money is the satisfaction of future transactions cost and its use-value is the satisfaction of present transactions needs. So long as these two aspects are satisfied, money can be a useful and powerful commodity on the market because it facilitates the process of future transactions cost and its use-value is the satisfaction of present transactions wants. Money is the substance that man uses to facilitate the process of exchange.