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What is it?
Money is a highly abstract concept, and it is tied up in complex social systems such as the bank system, the tax system, and the legal system, in addition to being defined by the marketplaces in which it is used. In short, money is a number of different things at once:
- A measure of value -- Money provides a single "measuring stick" to describe the value of goods and services. In addition to measuring prices of things bought and sold, people often estimate the value in money of certain things that are never traded or realized in money.
- An exchange medium -- Money is a universal medium which can be traded for almost anything for which trade is possible.
- A store of value -- Money provides somewhere where people can "store" value--that is, you can work, or sell something that cannot be easily stored, thus obtaining money, and then later use the money to buy something.
- A medium of power -- Money held by a person or organization equates to power, since money can be used to buy goods and support peoples' work. Large sums of money can even influence laws or courts, either through illegal means like bribery, or openly through lobbying or donations into the political system. In our society, money is the primary medium through which power is exercised.
These roles are not necessarily all in line with each other. For example, if a type of currency is losing value more quickly over time, it will function less well as a store of value, but better as an exchange medium. Conversely, currency that gains in value over time functions better as a store of value and less well as an exchange medium. This phenomenon is related to Gresham's Law, the phenomenon by which people in their daily lives tend to use whatever currency is losing value fastest.
- What's wrong with our money? -- This is an excellent and informative site describing how money works in more detail, and also proposing a new way of looking at money.
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