CONCEPT OF MONEY

ARPIT KOSHTI
WHAT IS MONEY ?
• Medium of exchange

• Unit of accounting

• Store of value (purchasing power)

• Standard of deferred payment

THE EVOLUTION OF MONEY
Barter Economy-moneyless economy
that relies on trade or barter
• Problems-
products some people offer are not
always acceptable or easy to divide
for payment
• Benefits-
“mutual coincidence of wants” when
two people want exactly what the
other has and are willing to trade
what they have for it
EARLY MONEY
• Early Societies developed forms of proto-money which
were commodities that everyone agreed to accept in trade
• Examples:
Aztecs-Cacao Beans (aka cocoa beans)
Norwegians-Butter
Colonists- Tobacco leaves, animal hides
China, India, Thailand, and West Africa-Cowrie shells
MONEY IN PRIMITIVE SOCIETIES

Commodity Money- money that has an

alternative use as an economic good, or
commodity.
Fiat Money- money by governmental decree
MONEY IN COLONIAL AMERICA

• Both fiat money and commodity

money were used in the original
thirteen colonies.
• Commodity money in America was
used to settle debts, make
purchases, or for personal
consumption
• In Massachusetts the local
government gave wampum shells a
monetary value
EARLY PAPER CURRENCY

• Early paper money was backed by

gold or silver deposits, served as
currency for immediate area

• 1775 Continental Congress printed

money that was not backed by gold
or silver
 SPECIE IN THE COLONIES
Specie- money in the form of gold or silver coins
• Most desirable form of money because of mineral
content, and limited supply
• 1776 there was $12million dollars worth of coin vs.
$ 500 million in paper money
 THE FOUR CHARACTERISTICS OF MONEY
Portability- can be easily transferred from one person to
another, and makes the exchange of money for products easier
Durable- does not deteriorate when handled and can be easily
replaced
Divisible- should be able to be broken down into smaller units
so that people can use only as much as needed for a transaction
Limited Supply- can not have to much of something because
then it becomes worthless….
WHICH OF THESE ITEMS MEET THE FOUR
CHARACTERISTICS OF MONEY?
FUNCTIONS OF MONEY

1. Medium of Exchange- money or other

substance generally accepted as payment for
goods or services
2. Measure of Value- function of money that
allows it to serve as a common way to
express value ex. Price Tags
3. Store of Value- allows people to preserve
value for future use
This allows a period of time to pass between
earning and spending an income.
DIFFERENT DEFINITIONS FOR THE MONEY SUPPLY

• M1- component of the money

supply relating to money’s role as a
medium of exchange
• Currency (Coins and Paper Money)
• All checkable deposits (travelers
checks, DDAs/ checking account)

• M2- component of the money

supply relating to money’s role as a
store of value
• Savings (savings deposit & money
market deposit account)
• Small time deposits (6 mo. CD)
• Money market funds (mutual fund)
CONCLUSION
• The basis requirement to survive in the society is money
…
• Without money you can’t fulfil your needs and your
identity..
• According to definitions: "Money is a commodity which
is generally acceptable as a medium of exchange and at
the same time it acts as a measure and a store of value".
 SPECIAL THANKS TO –

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THANK YOU..
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