Indeed, the complexity—and cost—of a visit to a grocery store in a barter economy would be so great that there probably would not be any grocery stores! A dime is money and serves all three functions of money. A much greater problem exists with commodity money that can be produced. You would need to load up a truckful of items the grocer might accept in exchange for groceries. In fact, holding money is a more effective way of storing value than holding other items of value such as corn, which might rot. It serves as a store of value. Information, Risk, and Insurance, Introduction to Information, Risk, and Insurance, 16.1 The Problem of Imperfect Information and Asymmetric Information, 17.1 How Businesses Raise Financial Capital, 17.2 How Households Supply Financial Capital, 18.1 Voter Participation and Costs of Elections, 18.3 Flaws in the Democratic System of Government, Chapter 19. Second: Money is a unit of account. Inflation slowly erodes the purchasing power of money over time. Thus, many types of savings accounts are easily converted into currency. King, “The Institutions of Monetary Policy” (lecture, American Economics Association Annual Meeting, San Diego, January 4, 2004), available at http://www.bankofengland.co.uk/speeches/speech208.pdf. Think about the complexity of such trades in a modern economy, with its extensive division of labor that involves thousands upon thousands of different jobs and goods. As commodity money, gold has historically served its purpose as a medium of exchange, a store of value, and as a unit of account. As economies grew and became more global in nature, the use of commodity monies became more cumbersome. When you find it, you will be pleased. After the Coalition Provisional Authority (CPA) assumed control of all of Iraq, Paul Bremer, then head of the CPA, announced that a new Iraqi dinar would be exchanged for both of the existing currencies over a three-month period ending in January 2004 at a rate that implied that one “Swiss” dinar was valued at 150 “Saddam” dinars. Because it is difficult to determine what (and what not) to measure as money, the Fed reports several different measures of money, including M1 and M2. ... Fiat money is possible because the three functions of money -- a medium of exchange, a unit of account, and a store of value -- are fulfilled as long as all people in a society acknowledge that the fiat money is a valid form of currency. It is highly illiquid but could eventually be converted to money. When people use something as a medium of exchange, it becomes money. Monopolistic Competition and Oligopoly, Introduction to Monopolistic Competition and Oligopoly, Chapter 11. While it is true that all money in an economy serves three functions, not all money is created equal. A Van Gogh painting is not money. Although money can take an extraordinary variety of forms, there are really only two types of money: money that has intrinsic value and money that does not have intrinsic value. Watch this video on the “History of Money.”. Hogendorn, Jan and Marion Johnson. The Shell Money of the Slave Trade. In an economy without money, an exchange between two people would involve a double coincidence of wants, a situation in which two people each want some good or service that the other person can provide. However, the items that provide this function have varied over time. Additionally, while the barter system might work adequately in small economies, it will keep these economies from growing. We have a 2015 water tanker that we took a loan out for, we still owe $110,000. A credit card identifies you as a person who has a special arrangement with the card issuer in which the issuer will lend you money and transfer the proceeds to another party whenever you want. Its role as a medium of exchange makes it a convenient store of value. Unless a means can be found to control the quality of commodity money, the tendency for that quality to decline can threaten its acceptability as a medium of exchange. Credit cards are not money. Countries moved towards the use of fiat money. The functions of money. We saw in the chapter that introduced the concept of inflation that inflation reduces the value of money. Thus, if you present a MasterCard to a jeweler as payment for a $500 ring, the firm that issued you the card will lend you the $500 and send that money, less a service charge, to the jeweler. But a card that says you have such a relationship is not money, just as your debit card is not money. You cannot eat dollar bills or wear your bank account. Examples include a house, land, art, rare coins or stamps, and so on. It's about as loud as a modern refrigerator on low and most of the sound is from the fan, more like a mini-split than a window unit. Money may or may not have intrinsic value. Money may or may not have intrinsic value.

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