Note: This is the latest entry in the Acton blog series, “What Christians Should Know About Economics.” For other entries in the series see this post.
The Term: Money
What it Means: In economics, money is a broad term that refers to any financial instrument that can fulfill the functions of money (more on that in a moment).
There are three basic ways to exchange goods and services: gifting (e.g., I give you a banana, expecting nothing in return); barter (e.g., I give you a banana, in exchange you give me an apple); by using money (e.g., I give you a banana, in exchange you give me $1). Money was invented (and reinvented in every culture) because it makes exchanges easier than the barter system.
What Money Is: Money is a shared belief system used to simplify exchanges of goods and services. To be used as money people have to share a belief that the item —whether paper, gold, rocks, etc. — can perform three main functions: be a store of value, be used as a unit of account, and serve as a medium of exchange.
In the next section we’ll examine these functions. For now, here are two examples of how money serves as a shared belief system: