The value and purpose of money

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  • Created by: Bia_2002
  • Created on: 20-12-19 22:26

What is money?

  • Anything that is widely accepted as a means of making payments e.g coins, notes and the electronic balances held in bank accounts.

Because the main purpose of money is to make payments, it is able to fulfil other purposes as well:

  • People can save it for making payments in the future 
  • People can borrow it and repay it in the future.
  • Give it to another person as a gift
  • Instruct the bank to pay some contents of the bank account to someone else e.g writing a cheque.

As money fulfils all these purposes, people use it in different ways. For example:

  • Beth has given her bank account instructions to pay her electricity bill by transferring money from her bank account to the electricity company every month - EDF take the money directly every month from your account(direct debit)
  • Mark has borrowed money from a bank to buy a moped in 6 months' time, by depositing money in a savings account.

Using barter to trade goods and services

      Before money was created, people used a system of barter to trade goods or services.

Bartering is about a fair exchange - when both parties swap two things of equal value and you get something you want.

Limitations of using bartering:

  • Relies on a 'double coincidence of wants', both have to agree on what they want
  • You might have to travel quite far
  • Time-consuming
  • Giving more for less

Using items with intrinsic value as payment

      The limitations of barter led people to create systems where the local community used an item they all valued as a means of payment. People in Japan, for example, used rice as 'money'. Buyers and sellers would agree on how much rice an item was worth: the buyer would then give the seller the agreed quantity of rice and receive the good they wanted in exchange. 

Other items that communities have used in the past include:

  • Pigs
  • Cowrie shells
  • Stones
  • Vodka

Metals including gold were valued because they could be used to make weapons, tools and jewellery. Pieces of metal began to be used as money, too.

The use of an intermediate item (cattle,

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