What Is Money?

What Is Money?

Money is the most abstract object in the world. Money has no physical boundaries, for it is both a thought and a fact, both actual and possible. It does not exist outside the transaction between people, as money appears on paper only after the exchange of products. As for the idea of money, it can be taken from the person who produces it and the person who receives it, although it is possible to exchange money without producing anything. Money therefore is both the product and the relation between the producer and the consumer.


Money, unlike all other things on earth, is not a commodity in general. Rather, it is a specific, abstract object, which can be traded and exchanged according to the laws of supply and demand. Money, like all other commodities, is a means of exchange that allows exchange of one form of value for another. Money is any tangible item or reliably verified historically valid account that is normally accepted as payment for particular goods and services, and payment of debts, including taxes, in a certain country or socio-cultural context.

Money, unlike all other commodities, is typically exchangeable on a direct transaction-cost basis. The transaction cost is the value added to the good or service over and above the prices that would be paid to buyers in a market. This value is measured by the amount of time, effort, and resources that are involved in the transfer, rather than by the physical characteristics of the good or service itself. This transaction cost then determines the market price of the good or service.

Money is also a medium of exchange because it can take various forms. For instance, banknotes, currency, and checks are all different mediums of exchange that allow transactions to be made between individuals. In addition, money can be a virtual form of currency as it is routinely traded on the Internet through financial institutions.

The main means of exchanging money is by private money exchange, which occurs when one party decides to sell its own currency in order to buy that of another party, or vice versa. Another common means of private money exchange is by using money directly created by the central bank. Central bank money is created at the beginning of the banking system by making loans to banks and other money creating agencies. After it is created, the money is immediately withdrawn from the banks and is then issued as “free money” to all citizens. Money created this way, and not by the government, is not considered as money for transactions, but merely a kind of banknote, like a redeemable bond, that has no transfer or exchange value.

Money is necessary, however, in order for markets to function. Without money, markets would not be able to set their prices above production and supply, and goods could not be financed. The role of money then is to stabilize the market for goods, to provide a buffer for fluctuations on the market caused by excess demand and supply due to economic policies, and to keep the overall economic cycle moving.