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money

  (mŭn'ē) pronunciation
n., pl. -eys or -ies.
  1. A medium that can be exchanged for goods and services and is used as a measure of their values on the market, including among its forms a commodity such as gold, an officially issued coin or note, or a deposit in a checking account or other readily liquefiable account.
  2. The official currency, coins, and negotiable paper notes issued by a government.
  3. Assets and property considered in terms of monetary value; wealth.
    1. Pecuniary profit or loss: He made money on the sale of his properties.
    2. One's salary; pay: It was a terrible job, but the money was good.
  4. An amount of cash or credit: raised the money for the new playground.
  5. Sums of money, especially of a specified nature. Often used in the plural: state tax moneys; monies set aside for research and development.
  6. A wealthy person, family, or group: to come from old money; to marry into money.
idioms:

for (one's) money

  1. According to one's opinion, choice, or preference: For my money, it's not worth the trouble.
in the money
  1. Slang. Rich; affluent.
  2. Sports & Games. Taking first, second, or third place in a contest on which a bet has been placed, such as a horserace.
on the money
  1. Exact; precise.
put money on Sports & Games.
  1. To place a bet on.
put (one's) money where (one's) mouth is Slang.
  1. To live up to one's words; act according to one's own advice.

[Middle English moneie, from Old French, from Latin monēta, mint, coinage, from Monēta, epithet of Juno, temple of Juno of Rome where money was coined.]


 
 

1. A commodity or asset, such as gold, an officially issued currency, coin or paper note, that can be legally exchanged for something equivalent, such as goods or services.

2. As defined by common law: a medium of exchange that is authorized or adopted by a domestic or foreign government and includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more nations.

Investopedia Says:
Also know as moola, dinero, bread or cash.

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Anything commonly accepted as a Legal Tender currency for payment of debts. Money has been defined any number of ways, but it generally serves three distinct purposes, depending on how it is used: (1) as a medium of exchange for payments between consumers, businesses, and government; (2) as a unit of account for measuring purchasing power, or the prices paid for goods and services; and (3) as a store of value for measuring the economic worth of current income deferred for spending in future years.

In the United States, paper currency (Federal Reserve Note), coins, and checking account balances are examples of money. Other forms of money are commodity money (gold and silver bullion and coins, brightly colored shells and so on), and Barter the trading of goods and services without monetary exchange. Today, paper currency represents only a fraction of the nation's money supply; about three-fourths of the Money Supply is held in the form of bookkeeping debits and credits representing demand deposit (checking) account balances in commercial banks. See also Currency in Circulation; Fiat Money; M1; M2; M3; Monetary Base; Money Supply; Near Money.

 

In the modern world we take money for granted. However, pause for a moment and imagine what life would be like without money. Suppose that you want to consume a particular good or service, such as a pair of shoes. If money didn't exist, you would need to barter with the cobbler for the pair of shoes that you want. Barter is the process of directly exchanging one good or service for another. In order to purchase the pair of shoes, you would need to have something to trade for the shoes. If you specialized in growing peaches, you would need to bring enough bushels of peaches to the cobbler's shop to purchase the pair of shoes. If the cobbler wanted your peaches and you wanted his shoes, then a double coincidence of wants would exist and trade could take place.

But what if the cobbler didn't want your peaches? In that case you would have to find out what he did want, for example, beef. Then you would have to trade your peaches for beef and the beef for shoes. But what if the person selling beef had no desire for peaches, but instead wants a computer? Then you would have to trade your peaches for a computer—and it would take a lot of peaches to buy a computer. Then you would have to trade your computer for beef and the beef for shoes. But what if…? At some point it would become easier to make the shoes yourself or to just do without.

The Evolution of Money

Money evolved as a way of avoiding the complexities and difficulties of barter. Money is any asset that is recognized by an economic community as having value. Historically, such assets have included, among other things, shells, stone disks (which can be somewhat difficult to carry around), gold, and bank notes.

The modern monetary system has its roots in the gold of medieval Europe. In the Middle Ages, gold and gold coins were the common currency. However, the wealthy found that carrying large quantities of gold around was difficult and made them the target of thieves. To avoid carrying gold coins, people began depositing them for safekeeping with goldsmiths, who often had heavily guarded vaults in which to store their valuable inventories of gold. The goldsmiths charged a fee for their services and issued receipts, or gold notes, in the amount of the deposits. Exchanging these receipts was much simpler and safer than carrying around gold coins. In addition, the depositors could retrieve their gold on demand.

Goldsmiths during this time became aware that few people actually wanted their gold coins back when the gold notes were so easy to use for exchange. They therefore began lending some of the gold on deposit to borrowers who paid a fee, called interest. These goldsmiths were the precursors to our modern fractional reserve banking system.

Functions of Money

Regardless of what asset is recognized by an economic community as money, in general it serves three functions:

  • Money is a medium of exchange.
  • Money is a measure of value.
  • Money is a store of value.

Money as a medium of exchange. Used as a medium of exchange, money means that parties to a transaction no longer need to barter one good for another. Because money is accepted as a medium of exchange, you can sell your peaches for money and purchase the desired shoes with the proceeds of the sale. You no longer need to trade peaches—a lot of them—for a computer and then the computer for beef and then the beef for the shoes. As a medium of exchange, money tends to encourage specialization and division of labor, promoting economic efficiency.

Money is a measure of value. As a measure of value, money makes transactions significantly simpler. Instead of markets determining the price of peaches relative to computers and to beef and to shoes, as well as the price of computers relative to beef and to shoes, as well as the price of beef relative to shoes (i.e., a total of six prices for only four goods), the markets only need to determine the price of each of the four goods in terms of money. If we were to add a fifth good to our simple economy, then we would add four more prices to the number of good-for-good prices that the markets must determine. As the number of goods in our economy grew, the number of good-for-good prices would grow rapidly. In an economy with ten goods, there would be forty-five good-for-good prices but only ten money prices. In an economy with twenty goods there would be one hundred and ninety good-for-good prices but only twenty money prices. Imagine all of the good-for-good prices in a more realistic economy with thousands of goods and services available.

Using money as a measure of value reduces the number of prices determined in markets and vastly reduces the cost of collecting price information for market participants. Instead of focusing on such information, market participants can focus their effort on producing the good or service in which they specialize.

Money as a store of value. Money can also serve as a store of value, since it can quickly be exchanged for desired goods and services. Many assets can be used as a store of value, including stocks, bonds, and real estate. However, there are transaction costs associated with converting these assets into money in order to purchase a desired good or service. These transaction costs could include monetary fees as well as time delays involved in the liquidation process.

In contrast, money is a poor store of value during periods of inflation, while the value of real estate tends to appreciate during such periods. Thus, the benefits of holding money must by balanced against the risks of holding money.

Summary

Money simplifies the exchange of goods and services and facilitates specialization and division of labor. It does this by serving as a medium of exchange, as a measure of value, and as a store of value.

[Article by: DENISE WOODBURY]

 
Thesaurus: money

noun

  1. Something, such as coins or printed bills, used as a medium of exchange: cash, currency, lucre. Informal wampum. Slang bread, cabbage, dough, gelt, green, jack, lettuce, long green, mazuma, moola, scratch. Chiefly British brass. See money.
  2. The monetary resources of a government, organization, or individual. capital, finance (used in plural), fund (used in plural). See money.

 

n

The general term for the representation of value, currency, or cash.

 

Commodity accepted by general consent as a medium of economic exchange. It is the medium in which prices and values are expressed; it circulates from person to person and country to country, thus facilitating trade. Throughout history various commodities have been used as money, including seashells, beads, and cattle, but since the 17th century the most common forms have been metal coins, paper notes, and bookkeeping entries. In standard economic theory, money is held to have four functions: to serve as a medium of exchange universally accepted in return for goods and services; to act as a measure of value, making possible the operation of the price system and the calculation of cost, profit, and loss; to serve as a standard of deferred payments, the unit in which loans are made and future transactions are fixed; and to provide a means of storing wealth not immediately required for use. Metals, especially gold and silver, have been used for money for at least 4,000 years; standardized coins have been minted for perhaps 2,600 years. In the late 18th and early 19th century, banks began to issue notes redeemable in gold or silver, which became the principal money of industrial economies. Temporarily during World War I and permanently from the 1930s, most nations abandoned the gold standard. To most individuals today, money consists of coins, notes, and bank deposits. In terms of the economy, however, the total money supply is several times as large as the sum total of individual money holdings so defined, since most of the deposits placed in banks are loaned out, thus multiplying the money supply several times over. See also soft money.

For more information on money, visit Britannica.com.

 
term that actually refers to two concepts: the abstract unit of account in terms of which the value of goods, services, and obligations can be compared; and anything that is widely established as a means of payment. Frequently the standard of value also serves as a medium of exchange, but that is not always the case.

Evolution

Many ancient communities, for instance, took cattle as their standard of value but used more manageable objects as means of payment. Exchange involving the use of money is a great improvement over barter, since it permits elaborate specialization and provides generalized purchasing power that the participants in the exchange may use in the future. The growth of monetary institutions has largely paralleled that of trade and industry; today almost all economic activity is concerned with the making and spending of money incomes.

From the earliest times precious metals have had wide monetary use, owing to convenience of handling, durability, divisibility, and the high intrinsic value commonly attached to them. Whether an article is to be regarded as money does not, however, depend on its value as a commodity, except where intrinsic worth is necessary to make it generally acceptable in exchange; the relation between the face value of an object used as money and its commodity value has actually become increasingly remote (see coin). Paper currency first appeared about 300 years ago; it was usually backed by some “standard” commodity of intrinsic value into which it could be freely converted on demand, but even during the early development of currency, issuance of inconvertible paper money, also called fiat money, was not infrequent (see, for example, Law, John). The world's first durable plastic currency was introduced by Australia in a special issue in 1988 and in a regular issue in 1992. Plastic bills are more resistant to counterfeiting than paper, and a number of countries now issue some plastic currency.

The importance of money has been variously interpreted. While the advocates of mercantilism tended to identify money with wealth, the classical economists, e.g., John Stuart Mill, usually considered money as a veil obscuring real economic phenomena. Since the mid-20th cent., a group known as the monetarists has given increasing attention to the role of money in determining national income and economic fluctuations.

The Monetary System of the United States

The monetary system of the United States was based on bimetallism during most of the 19th cent. A full gold standard was in effect from 1900 to 1933, providing for free coinage of gold and full convertibility of currency into gold coin; the volume of money in circulation was closely related to the gold supply. The passage of the Gold Reserve Act of 1934, which put the country on a modified gold standard, presaged the end of the gold-based monetary system in domestic exchange. Under this system, the dollar was legally defined as having a certain, fixed value in gold. While gold was still thought to be important for maintenance of confidence in the dollar, its connection with the actual use of money was at best vague. The 1934 act stipulated that gold could not be used as a medium of domestic exchange. More recently, a number of measures have de-emphasized the dollar's dependence on gold; since the early 1970s, practically all U.S. currency, paper or coin, is essentially fiat money.

Under the Legal Tender Act of 1933, all American coin and paper money in circulation is now legal tender, i.e., under the law it must be accepted at face value by creditors in payment of any debt, public or private. Most of the currency circulating in the United States consists of Federal Reserve notes, which are issued in denominations ranging from $1 to $100 by the Federal Reserve System, are guaranteed by the U.S. government, and are secured by government securities and eligible commercial paper. A small fraction of the currency supply is made up of the various types of coin, none of which has a commodity value equal to its face value. Finally, an even smaller part of the circulating currency is composed of bills that are no longer issued, such as silver certificates, which were redeemable in silver until 1967, and bills in denominations between $500 and $100,000, which have not been issued since 1969. Today, currency and coin are less widely used as a means of payment than checks, debit cards, and credit cards; demand deposits (checking accounts) are, therefore, generally considered part of the money supply. Starting in 1996, the Federal Reserve undertook the redesign of all paper bills, chiefly to deter a new wave of counterfeiting that uses computer technology; further changes, including colors in addition to green, were introduced in 2003. (See banking; on the regulation of the supply, availability, and cost of money, see Federal Reserve System and interest.) Certain assets, sometimes called near-monies, are similar to money in that they can usually be readily converted into cash without loss; they include, for example, time deposits and very short-term obligations of the federal government. Funds that are frequently transferred from country to country for maximum advantage are called hot monies. The technical definition of the nation's aggregate money supply includes three measures of money: M-1, the sum of all currency and demand deposits held by consumers and businesses; M-2 is M-1 plus all savings accounts, time deposits (e.g., certificates of deposit), and smaller money-market accounts; M-3 is M-2 plus large-denomination time deposits held by corporations and financial institutions and money-market funds held by financial institutions.

Electronic Money

Electronic payment systems, already in place for use by credit-card processors, were adapted in the 1990s for use in electronic commerce (e-commerce) on the Internet. Such “digital cash” payments allow customers to pay for on-line orders using secure accounts established with specialized financial institutions; related technology is used for on-line payment of bills.

Bibliography

See J. M. Keynes, General Theory of Employment, Interest, and Money (1936); J. Niehans, The Theory of Money (1980); J. Wheatley, An Essay on the Theory of Money and Principles of Commerce (1983); A. Schwartz, Money in Historical Perspective (1987); J. Hicks, A Market Theory of Money (1989); C. Rogers, Money, Interest and Capital (1989); J. Goodwin, Greenback: The Almighty Dollar and the Invention of America (2002).


 

Coined metal, usually gold or silver, upon which a government has impressed its stamp to designate its value. While money was once limited to "coin of the realm," in common usage the term refers to any currency, tokens, bank notes or the like accepted as a medium of exchange. Under the Uniform Commercial Code, money is defined as "a medium of exchange authorized or adopted by a domestic or foreign government as a part of its currency." U.C.C. §1-201(24). Compare legal tender.

 

Money that comes from a pact with the devil is of poor quality, and such wealth, like the fairy-money, generally turns to earth, or to lead, toads, or anything else worthless or repulsive. St. Gregory of Tours (d. 594 C.E.) told a illustrative story: "A youth received a piece of folded paper from a stranger, who told him that he could get from it as much money as he wished, so long as he did not unfold it. The youth drew many gold pieces from the papers, but at length curiosity overcame him, he unfolded it and discovered within the claws of a cat and a bear, the feet of a toad and other repulsive fragments, while at the same moment his wealth disappeared."

It is said that an Irishman outsmarted the devil. In his book Irish Witchcraft and Demonology (1913; 1973), St. John D. Seymour told the amusing story of Joseph Damer of Tipperary County, who made a bargain with the devil to sell his soul for a top-boot full of gold. On the appointed day, the devil was ushered into the living room, where a top-boot stood in the center of the floor. The devil poured gold into it, but to his surprise, it remained empty. He hastened away for more gold, but the top-boot would not fill, even after repeated efforts. At length, in sheer disgust, the devil departed. Afterward it was claimed that the shrewd Irishman had taken the sole off the boot and fastened it over a hole in the floor. Underneath was a series of large cellars, where men waited with shovels to remove each shower of gold as it came down.

In popular superstition it is supposed that if a person hears the cuckoo for the first time with money in his pocket, he will have some all the year, while if he greets the new moon for the first time in the same fortunate condition, he will not lack money throughout the month.

 
A cynical view of the world by Ambrose Bierce


n.

A blessing that is of no advantage to us excepting when we part with it. An evidence of culture and a passport to polite society. Supportable property.


 
Word Tutor: money
pronunciation

IN BRIEF: The official currency issued by a government or national bank.

pronunciation Happy is harder than money. Anyone who thinks money will make them happy, doesn't have money. — David Geffen

 

Quotes:

"Bankruptcy is a legal proceeding in which you put your money in your pants pocket and give your coat to your creditors." - Joey Adams

"The best way to make happy money is to make money your hobby and not your god." - Scott Alexander

"Making money is a hobby that will complement any other hobbies you have, beautifully." - Scott Alexander

"Money is better than poverty, if only for financial reasons." - Woody Allen

"Money doesn't mind if we say it's evil, it goes from strength to strength. It's a fiction, an addiction, and a tacit conspiracy." - Martin Amis

"Capital can do nothing without brains to direct it." - J. Ogden Armour

See more famous quotes about Money

 
Wikipedia: money


Various denominations of currency, one form of money
Enlarge
Various denominations of currency, one form of money

Money is any token or other object that functions as a medium of exchange that is socially and legally accepted in payment for goods and services and in settlement of debts. Money also serves as a standard of value for measuring the relative worth of different goods and services and as a store of value. Some authors explicitly require money to be a standard of deferred payment.[1]

Money includes both currency, particularly the many circulating currencies with legal tender status, and various forms of financial deposit accounts, such as demand deposits, savings accounts, and certificates of deposit. In modern economies, currency is the smallest component of the money supply.

Money is not the same as real value, the latter being the basic element in economics. Money is central to the study of economics and forms its most cogent link to finance. The absence of money causes an economy to be inefficient because it requires a coincidence of wants between traders, and an agreement that these needs are of equal value, before a barter exchange can occur. The efficiency gains through the use of money are thought to encourage trade and the division of labour, in turn increasing productivity and wealth.

Economic characteristics

Money is generally considered to have the following characteristics, which are summed up in a rhyme found in older economics textbooks and a primer: "Money is a matter of functions four, a medium, a measure, a standard, a store."

There have been many historical arguments regarding the combination of money's functions, some arguing that they need more separation and that a single unit is insufficient to deal with them all. 'Financial capital' is a more general and inclusive term for all liquid instruments, whether or not they are a uniformly recognized tender.

Medium of exchange

Main article: Medium of exchange

Unit of account

Main article: Unit of account

A unit of account is a standard numerical unit of measurement of the market value of goods, services, and other transactions. Also known as a "measure" or "standard" of relative worth and deferred payment, a unit of account is a necessary pre-requisite for the formulation of commercial agreements that involve debt.

  • Divisible into small units without destroying its value; precious metals can be coined from bars, or melted down into bars again.
  • Fungible: that is, one unit or piece must be exactly equivalent to another, which is why diamonds, works of art or real estate are not suitable as money.
  • A specific weight, or measure, or size to be verifiably countable. For instance, coins are often made with ridges around the edges, so that any removal of material from the coin (lowering its commodity value) will be easy to detect.

Store of value

Main article: Store of value

To act as a store of value, a commodity, a form of money, or financial capital must be able to be reliably saved, stored, and retrieved - and be predictably useful when it is so retrieved. Fiat currency like paper or electronic currency no longer backed by gold in most countries is not considered by some economists to be a store of value.

Market liquidity

Main article: Market liquidity

It is important for any economy to move beyond a simple system of bartering. Liquidity describes how easily an item can be traded for another item, or into the common currency within an economy. Money is the most liquid asset because it is universally recognised and accepted as the common currency. In this way, money gives consumers the freedom to trade goods and services easily without having to barter.

Liquid financial instruments are easily tradable and have low transaction costs. There should be no--or minimal--spread between the prices to buy and sell the instrument being used as money.

Types of money

In economics, money is a broad term that refers to any instrument that can be used in the resolution of debt. However, different types of money have different economic strengths and liabilities. Theoretician Ludwig von Mises made that point in his book The Theory of Money and Credit, and he argued for the importance of distinguishing among three types of money: commodity money, fiat money, and credit money. Modern monetary theory also distinguishes among different types of money, using a categorization system that focuses on the liquidity of money.

Commodity money

Main article: Commodity money

Commodity money is any money that is both used as a general purpose medium of exchange and as a tradable commodity in its own right.[2]

Commodity based currencies are often viewed as more stable, but this is not always the case. The value of a commodity based currency as a medium of exchange depends on its supply relative to other goods and services available in the economy. Historically, gold, silver and other metals commonly used in commodity based monetary systems have been subject to regular and sometimes extraordinary fluctuations in purchasing power. This not only damages its stability as a medium of exchange; it also reduces its effectiveness as a store of value. In the 1500s and 1600s huge quantities of gold and even larger amounts of silver were discovered in the New World and brought back to Europe for conversion into coin. As a result, the purchasing power of those coins fell by 60% to 80%, i.e. the prices of goods rose, because the supply of goods did not keep pace with the increased supply of money.[3] In addition, the relative value of silver to gold shifted dramatically downward.[4] Such discoveries of huge sources of gold or silver are a thing of the past, and lend to their supply stability. More recently, from 1980 to 2001, gold was a particularly poor store of value, as gold prices dropped from a high of $850/oz. ($27.30 /g) to a low of $255/oz. ($8.20 /g).[citation needed] It should be noted that gold was not a currency at this time, and was fluctuating due to its status as a final store of value — that is, the price never goes to zero as fiat currencies inevitably do.[citation needed] The advantage of gold and silver, however, lies in the fact that, unlike fiat paper currency, the supply cannot be increased arbitrarily by a central bank.

It is also possible for the trading value of a commodity money to be greater than its value as a medium of exchange when governments attempt to fix exchange rates between different commodity monies. When this happens people will often start melting down coins and reselling the metal used to make them. This has happened periodically in the United States, eventually causing it to move away from pure silver nickels and pure copper pennies.[citation needed] Shipping coins from one jurisdiction to another so that they could be reminted was sometimes a lucrative trade before the advent of trusted paper money. [citation needed]

Commodity money's ability to function as a store of value is also limited by its very nature. Copper and tin risk rust and corrosion. Gold and silver are soft metals that can lose weight through scratches and abrasions, but this is nothing by comparison to fiat currencies, where billions of dollars can be injected ("printed") into the market within moments.

Stability aside, commodity-based currencies may have a tendency to restrain growth in a very active economy. For example, in order to maintain the price level, the supply of money in an any economy must be equal or greater than the volume of goods and services produced. If commodities are used as money, then the total production can easily outstrip the supply of those commodities, which leads to price deflation. The lower prices of goods would signal to their producers to reduce the supply of goods, hence restoring the price level. As such, production within commodity-based economies tends to be limited by the supply of the commodity currency.[citation needed]

This problem is compounded by the fact that money also serves as a store of value. This encourages hoarding (in other circumstances known as "saving")and takes the commodity money out circulation, reducing the supply. The supply of circulating commodity currency is further reduced by the fact that commodity moneys also have competing non-monetary uses. For example, gold and silver are used in jewelry, and nickel and copper have important industrial uses.

Commodity based currencies also limit the geographic extent of the trading market. To make large purchases either a large volume or a high weight or both of the commodity must be transported to the seller. The cost of transportation of the currency raises the transaction cost and makes long distance sales less attractive.

Banknotes from all around the world donated by visitors to the British Museum, London
Enlarge
Banknotes from all around the world donated by visitors to the British Museum, London

Fiat money


Main article: Fiat money

Fiat money is any money whose value is determined by legal means rather than the relative availability of goods and services. Fiat money may be symbolic of a commodity or government promises.[2]

Fiat money provides solutions to several limitations of commodity money. Depending on the laws, there may be little or no need to physically transport the money - an electronic exchange may be sufficient. Its sole use is as a medium of exchange so its supply is not limited by competing alternate uses. It can be printed without limit, so there is no limit on trade volumes.

Fiat money, especially in the form of paper or coins, can be easily damaged or destroyed. However, it has an advantage over commodity money in that the same laws that created the money can also define rules for its replacement in case of damage or destruction. For example, the US government will replace mutilated paper money if at least half of the bill can be reconstructed.[5]. By contrast commodity money is gone for good.

Paper money is especially vulnerable to everyday hazards: from fire, water, termites, and simple wear and tear. Money in the form of minted coins is sometimes destroyed by children placing it on railroad tracks or in amusement park machines that restamp it. In order to reduce replacement costs, many countries are converting to plastic bills. For example, Mexico has changed its twenty and fifty pesos notes, Singapore its $2, $5, $10 and $50 bills, Malaysia with RM5 bill, and Australia and New Zealand their $5, $10, $20, $50 and $100 to plastic for the increased durability.

Some of the benefits of fiat money can be a double-edged sword. For example, if the amount of money in active circulation outstrips the available goods and services for sale, the effect can be inflationary. This can easily happen if governments print money without attention to the level of economic activity or counterfeiters are allowed to flourish.

Perhaps the biggest criticism of paper money relates to the fact that its stability is highly dependent on the stability of the legal system backing the currency. Should the legal system fail, so would the currency that depends on it.

Credit money

Main article: Credit money

Credit money is any claim against a physical or legal person that can be used for the purchase of goods and services[2]. Credit money differs from commodity and fiat money in two important ways: It is not payable on demand and there is some element of risk that the real value upon fulfillment of the claim will not be equal to real value expected at the time of purchase[2].

This risk comes about in two ways and affects both buyer and seller.

First it is a claim and the claimant may default (not pay). High levels of default have destructive supply side effects. If manufacturers and service providers do not receive payment for the goods they produce, they will not have the resources to buy the labor and materials needed to produce new goods and services. This reduces supply, increases prices and raises unemployment, possibly triggering a period of stagflation. In extreme cases, widespread defaults can cause a lack of confidence in lending institutions and lead to economic depression. For example, abuse of credit arrangements is considered one of the significant causes of the Great Depression of the 1930s. [6]

The second source of risk is time. Credit money is a promise of future payment. If the interest rate on the claim fails to compensate for the combined impact of the inflation (or deflation) rate and the time value of money, the seller will receive less real value than anticipated. If the interest rate on the claim overcompensates, the buyer will pay more than expected.

Over the last two centuries, credit money has steadily risen as the main source of money creation, progressively replacing first commodity then fiat money.

The main problem with credit money is that its supply moves in line with credit booms and bust. When lenders are optimistic (notably when the debt level is low), they increase their lendings activity, thus creating new money and triggering inflation, when they are pessimistic (for instance because the debt level is perceived as so high that defaults can only follow), they reduce their lending activities, bankruptcies and deflation follows.

Money supply

Main article: Money supply

The money supply is the amount of money within a specific economy available for purchasing goods or services. The supply in the US is usually considered as four escalating categories M0, M1, M2 and M3. The categories grow in size with M3 representing all forms of money (including credit) and M0 being just base money (coins, bills, and central bank deposits). M0 is also money that can satisfy private banks' reserve requirements. In the US, the Federal Reserve is responsible for controlling the money supply, while in the Euro area the respective institution is the European Central Bank. Other central banks with significant impact on global finances are the Bank of Japan, People's Bank of China and the Bank of England.

When gold is used as money, the money supply can grow in either of two ways. First, the money supply can increase as the amount of gold increases by new gold mining at about 2% per year, but it can also increase more during periods of gold rushes and discoveries, such as when Columbus discovered the new world and brought gold back to Spain, or when gold was discovered in California in 1848. This kind of increase helps debtors, and causes inflation, as the value of gold goes down. Second, the money supply can increase when the value of gold goes up. This kind of increase in the value of gold helps savers and creditors and is called deflation, where items for sale are less expensive in terms of gold. Deflation was the more typical situation for over a century when gold and credit money backed by gold were used as money in the US from 1792 to 1913.

Monetary policy

Main article: Monetary policy

Monetary policy is the process by which a government, central bank, or monetary authority manages the money supply to achieve specific goals. Usually the goal of monetary policy is to accommodate economic growth in an environment of stable prices. For example, it is clearly stated in the Federal Reserve Act that the Board of Governors and the Federal Open Market Committee should seek “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” [7]

A failed monetary policy can have significant detrimental effects on an economy and the society that depends on it. These include hyperinflation, stagflation, recession, high unemployment, shortages of imported goods, inability to export goods, and even total monetary collapse and the adoption of a much less efficient barter economy. This happened in Russia, for instance, after the fall of the Soviet Union.

Governments and central banks have taken both regulatory and free market approaches to monetary policy. Some of the tools used to control the money supply include:

  • currency purchases or sales
  • increasing or lowering government spending
  • increasing or lowering government borrowing
  • changing the rate at which the government loans or borrows money
  • manipulation of exchange rates
  • taxation or tax breaks on imports or exports of capital into a country
  • raising or lowering bank reserve requirements
  • regulation or prohibition of private currencies

For many years much of monetary policy was influenced by an economic theory known as monetarism. Monetarism is an economic theory which argues that management of the money supply should be the primary means of regulating economic activity. The stability of the demand for money prior to the 1980s was a key finding of Milton Friedman and Anna Schwartz [8] supported by the work of David Laidler[9], and many others.

The nature of the demand for money changed during the 1980s owing to technical, institutional, and legal factors and the influence of monetarism has since decreased.

History of money

Main article: History of money

The first golden coins in history were coined by Lydian king Croesus, around 560 BC. The first Greek coins were made initially of copper, then of iron because copper and iron were powerful materials used to make weapons. Pheidon king of Argos, around 700 BC, changed the coins from iron to a rather useless and ornamental metal, silver, and, according to Aristotle, dedicated some of the remaining iron coins (which were actually iron sticks) to the temple of Hera[1]. King Pheidon coined the silver coins at Aegina, at the temple of the goddess of wisdom and war Athena the Aphaia (the vanisher), and engraved the coins with a Chelone, which is to this day as a symbol of capitalism. Chelone coins[2] were the first medium of exchange that was not backed by a real value good. They were widely accepted and used as the international medium of exchange until the days of Peloponnesian War, when the Athenian Drachma replace them. According other fables, inventors of money were Demodike(or Hermodike) of Kymi (the wife of Midas), Lykos (son of Pandion II and ancestor of the Lycians) and Erichthonius, the Lydians or the Naxians.


See also

Category:Money

Wikiquote has a collection of quotations related to:
Wikimedia Commons has media related to:

References

  1. ^ amosweb.com
  2. ^ a b c d
  3. ^ Galbraith, J.K., Money: Whence it came, where it went, Penguin, UK, 1975, p.20-21.
  4. ^ Weatherford, J., "Indian Givers: How the Indians of the Americas Transformed the World", Ballantine Books, US 1988, p16
  5. ^ Shredded and mutilated. Bureau of engraving and printing. Last accessed 2007-05-09
  6. ^ Barry Eichengreen and Kris Mitchener. The Great Depression as a Credit Boom Gone Wrong. Last accessed 2007-05-08.
  7. ^ The Federal Reserve. 'Monetary Policy and the Economy". Board of Governors of the Federal Reserve System, (2005-07-05). Retrieved 2007-05-15.
  8. ^ Milton Friedman, Anna Jacobson Schwartz, (1971). Monetary History of the United States, 1867-1960. Princeton, N.J: Princeton University Press. ISBN 0-691-00354-8. 
  9. ^ David Laidler,. Money and Macroeconomics: The Selected Essays of David Laidler (Economists of the Twentieth Century). Edward Elgar Publishing. ISBN 1-85898-596-X. 

External links

zh-yue:錢


 

Common misspelling(s) of money

  • moeny

 
Translations: Translations for: Money

Dansk (Danish)
n. - penge, møntenhed
adj. - pengebeløb/pengesummer

idioms:

  • in the money    velhavende
  • money box    sparebøsse, indsamlingsbøsse
  • money changer    valutahandler
  • money down    kontant
  • money for old rope    få penge forærende
  • money is no object    penge spiller ingen rolle
  • money of account    regningsenhed
  • money order    postanvisning
  • money talks    have noget at sige, have magt
  • money to burn    have penge som skidt
  • put one's money where one's mouth is    understøtte tale med handling, lade handling følge ord
  • run for one's money    arbejde for pengene
  • throw good money after bad    kaste gode penge efter dårlige, gøre ondt værre
  • throw money at    bruge penge på

Nederlands (Dutch)
geld, rijkdom

Français (French)
n. - argent, (Fin) monnaie, prix, fortune
adj. - d'argent, financier

idioms:

  • a run for one's money    donner du fil à retordre, ne pas s'avouer vaincu d'avance, bien profiter
  • in the money    riche, rouler sur l'or
  • money box    tirelire
  • money changer    changeur
  • money down    argent gaspillé
  • money for old rope    (être) de l'argent vite gagné/gagné sans peine, (être) payé à ne rien faire
  • money is no object    l'argent n'est pas un problème
  • money of account    (US, Can) unité de compte
  • money order    mandat
  • money talks    l'argent est roi (Prov)
  • money to burn    (avoir) de l'argent à ne savoir qu'en faire
  • on the money    (rouler) sur l'or
  • put money on    investir de l'argent dans
  • put one's money where one's mouth is    sortir son portefeuille, joindre l'acte à la parole (en déboursant une somme d'argent)
  • throw good money after bad    investir en pure perte
  • throw money at    jeter de l'argent dans/à

Deutsch (German)
n. - Geld
adj. - entscheidend, verläßlich

idioms:

  • a run for one's money    starke Konkurrenz
  • in the money    reich
  • money box    Sparbüchse
  • money changer    Geldwechsler
  • money down    investiertes Geld
  • money for old rope    leicht verdientes Geld
  • money is no object    Geld spielt keine Rolle
  • money of account    Rechnungseinheit
  • money order    Zahlungsanweisung
  • money talks    das Geld macht's
  • money to burn    Geld wie Heu
  • on the money    (AmE) haargenau stimmen
  • put money on    auf etw. (Akk.) wetten od. setzen, (fig.) [seine Hoffnung] auf etw. (Akk.) setzen
  • put one's money where one's mouth is    seinen Worten Taten folgen lassen
  • throw good money after bad    noch mehr Geld rauswerfen
  • throw money at    investieren

Ελληνική (Greek)
n. - χρήμα, χρήματα, λεφτά, νόμισμα
adj. - χρηματικός

idioms:

  • in the money    παραλής, ματσός, κερδισμένος
  • money box    κουμπαράς
  • money changer    αργυραμοιβός (κν. σαράφης)
  • money down    τα λεφτά μπροστά
  • money for old rope    πεταμένα λεφτά
  • money is no object    τα λεφτά δεν είναι πρόβλημα, πληρώνω όσο-όσο
  • money of account    λογιστικό χρήμα
  • money order    (ταχυδρομικό) έμβασμα/επιταγή
  • money talks    ο παράς ανοίγει όλες τις πόρτες
  • money to burn    λεφτά και για πέταμα
  • put one's money where one's mouth is    αναλαμβάνω δέσμευση, συνοδεύω τα λόγια μου με πράξεις
  • run for one's money    καταδιώκω
  • throw good money after bad    συνεχίζω επιζήμια δραστηριότητα, μπαίνω ακόμα πιο μέσα
  • throw money at    ρίχνω λεφτά (επιδοτώ, επενδύω)

Italiano (Italian)
denaro, spiccioli

idioms:

  • in the money    in soldi, ricco
  • money box    salvadanaio
  • money changer    cambiavalute
  • money down    in acconto
  • money order    vaglia
  • money talks    conta chi ha soldi
  • money to burn    soldi da buttar via
  • put one's money where one's mouth is    spendere i soldi per migliorare la situazione invece di parlare
  • throw good money after bad    perorare una causa persa
  • throw money at    buttare soldi nel

Português (Portuguese)
n. - dinheiro (m), quantia (f), propriedade (f)
adj. - relativo ao dinheiro

idioms:

  • in the money    rico (gír.)
  • money box    cofrinho (m)
  • money changer    cambista (m)
  • money down    entrada (f)
  • money order    ordem de pagamento (f), vale postal (m)
  • money talks    o dinheiro fala (gír.)
  • money to burn    queimar dinheiro (gír.)
  • put one's money where one's mouth is    mostrar coerência entre o que se fala e o que se faz
  • run for one's money    correr atrás do dinheiro
  • throw good money after bad    pôr mais dinheiro a perder
  • throw money at    desperdiçar (gastando mais do que o necessário para resolver algo)

Русский (Russian)
деньги, валюта

idioms:

  • in the money    быть в выигрыше, иметь много денег
  • money box    копилка
  • money changer    меняла
  • money down    платить немедленно наличными, деньги на бочку
  • money order    почтовый денежный перевод
  • money talks    плата за услуги сомнительно свойства
  • money to burn    денег куры не клюют
  • put one's money where one's mouth is    платить деньги в поддержку чьего-л. заявления или мнения
  • run for one's money    упорная борьба
  • throw good money after bad    тратить деньги впустую, упорствовать в безнадежном деле
  • throw money at    пытаться решить проблему исключительно путем выбрасывания денег

Español (Spanish)
n. - dinero, efectivo, fondos, moneda suelta, sencillo
adj. - de moneda o dinero

idioms:

  • a run for one's money    sacarle jugo al dinero, dar buena cuenta de sí
  • in the money    acaudalado, rico
  • money box    hucha, alcancía
  • money changer    cambista
  • money down    pago al contado, desembolso inicial
  • money for old rope    ganar dinero con poco esfuerzo, dinero regalado
  • money is no object    el dinero no importa
  • money of account    dinero de la cuenta
  • money order    giro postal
  • money talks    el dinero manda, poderoso caballero es Don Dinero
  • money to burn    estar forrado, nadar en dinero o en la abundancia
  • on the money    en el lugar o en el momento exacto
  • put money on    invertir
  • put one's money where one's mouth is    predicar con el ejemplo, obrar de acuerd