What’s The Real Purpose Of Money?

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There is an old rhyme once used in economics books.

Money is a matter of functions four: a medium, a measure, a standard, and a store.”

Three of these functions are clear.

A medium of exchange is what people use to pay for goods.

A measure means that money is a way of measuring economic value: the unit of account. Suppose a business has 100 units of money worth of assets at the start of the year. At the end of the year, it has 110 units. It has earned a profit of 10 units. Of course, this calculation is only meaningful if money measures value accurately.

Storing value is the flip side of this same coin. If someone holds 100 units of money for a year—or ten years—he should have the same amount of value at the end.

Let’s just say that it’s now clear why this old verse is no longer so popular in the textbooks favored by the monetary central planners. The dollar is terrible at holding its value, and they’d rather that people not be aware of this once-common bit of knowledge.

The fourth is the least well understood and is sometimes omitted from discussion entirely. And when it is mentioned, it’s often a confusing idea of paying for goods at a later date. For example, the Wikipedia entry for Standard of deferred payment says:

“In economics, the standard of deferred payment is a function of money. It is the function of money of being a widely accepted way to value a debt, thereby allowing goods and services to be acquired now and paid for in the future.[1]”

The citation is to a page of something called Encyclonomic Webpedia. The first heading is:

“Buy Now, Pay Later”

Many people have accepted the idea that consumption drives the economy (thus they accept the flawed concept of GDP as a measure of the economy). This spills onto their conception of money, they think is about buying consumer goods now, holding to buy consumer goods later, or getting consumer goods now but paying later.

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Disclaimer: The content in this article is provided as general information and for educational purposes only and should not be taken as investment advice. We do not guarantee the accuracy ...

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