Definition of Money
Money can be defined as anything legal which is generally acceptable by people in the settlement of debts. It is used to determine the value of goods and services and to promote exchange. Anything used as money must be backed by law.
Evolution of Money
The early man lived a subsistence life but as the societyThe term society is derived from the Latin word 'socius' meaning friendship or companionship. Society is a community, nation or group of people who share the same traditions, institutions, rules and... More grew, he had numerous wants so he needed goods and services produced by others to satisfy his basic needs. This brought about the barter system of exchange. This is the exchange of goods for goods and services for services.
The barter system came with much difficulties such as double coincidence of wants e.g. to locate the things one wants is a problem you need yam while you have goat. The person who has yam may not want goat.
Later, different commodities were used as money until the collapse of the barter system. Then commodities such as beads, tobacco, salts, seeds, manila, metal, cowry shells, precious feather, textile materials, cows, etc were used as means of exchange.
The commodities for exchange were also relatively scarce which made them be valuable and acceptable. People used to keep their gold and other valuables with the goldsmiths when banks were non-existing. The goldsmiths issued receipts to the depositors of those valuable goods (gold, wills, etc). As time went go, people started using the receipts issued by the goldsmith for buying and selling of goods and services. It was these receipts issued by the goldsmith that gradually modernized and renamed as money. Today, money has solved that cumbersome means of exchange which is referred to as trade by barter.
Functions of Money
- Medium of Exchange: money is used in payments for goods and services, buying and selling is facilitated by using this commodity called money.
- Measure of Value: money is used as a yardstick for measuring and comparing the worth of goods and services as well as occupations.
- Unit of Account: records of both receipts and payment can be conveniently kept in monetary units, records of business transactions can easily be kept in monetary units. Records of business transactions can easily be kept by fixing prices for goods and services.
- Store of Value: to store surplus goods and wealth for future use, money has to be used. Money is able to perform this function well because it is fairly durable and cheap to maintain.
- Standard for Deferred Payment: money has made it possible for goods and services to be bought and payment made at a later date. This is because money is homogeneous and fairly durable.
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