Money
simplest method of transacting value is Direct Exchange / Barter. To get around the problems with barter you need_indirect exchange_. The intermediary is a medium of exchange.
he single most efficient and productive medium of exchange for a population will naturally emerge and will outcompete and replace all others (there is a sort of network adoption effect that takes place. Think of Facebook).
A widespread, widely-accepted medium of exchange is known as Money*.
Medium of Exchange as quintessential function
Not to be consumed, nor invested, but exchanged for other oods.
As opposed to capital investment, money should:
- carry little risk of loss
- offer no return
- be very liquid There will always be demand for money because of its liquidity - the future is uncertain, so investment alone is insufficient to guard against unforeseen events.
This holding-for-the-sake-of-insurance comes at a cost: foregone consumption of goods and foregone returns from nvestment.
Salability
oney must be transportable, divisible, accepted by others and easily sellable on the market without loss of price.
Second function: Store of Value
Store of Value Money should be Hard money-hardness.
For a good to assume a monetary role, it must be costly to produce or otherwise restricted in its production, thus opposing the Easy money trap and maintaining the value of those who save in it. Whenever a medium of exchange “softens” and begins to lose its monetary status, it will be replaced by another medium of exchange with a better stock:flow ratio. This has happened repeatedly throughout history.
Soundness of money determines a lot
Those who can plan for the future thanks to a sound store of wealth will tend to value the future over the present (time-preference).