Money - What Money Is And How It Works.

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Way back in time, man lived in an economy that ran on a type of trade known as 'barter trade', whereby goods and services where exchanged directly for other goods or services. But because of the fixed value of goods and services, these exchanges suffered the problem of incompatibility. Someone overtime, came up with an idea of a universal medium of exchange that would iron out these incompatibilities. This medium of exchange is what we now call money. In this article we'll be looking at what money is and how it works.

What Is Money?


Money is a universal medium of exchange (It simply means; it can be exchanged for anything).




It converts the value of the tangible goods and services from a fixed to a fluid form.




Like ice is converted from a solid to a liquid form by heat.




The liquid form of water flows more freely.




The value of goods and services also flows more freely in the market place when in a fluid form otherwise known as 'money'.

Way back in time, man lived in an economy that ran on a type of trade known as barter trade, whereby goods and services where exchanged directly for other goods or services. If you had a cow but needed four goats, what you would have to do was to go on the market and look for someone with four goats to exchange your cow with.


The problem with this type of trade (barter trade) is that, you would find someone with the four goats, which is what you're looking for, but then this someone doesn't need a cow; they need something else e.g. turkeys. They therefore have what you want but you don't have what they want, so you can’t do business.


You would then find someone else who needs a cow, which is what you have, but this someone doesn't have four goats, they have something else e.g. sheep. You therefore have what they want, but they don't have what you want, so you can't do business.


You would then end up with a market of people like these; who have four goats but don't need a cow, they need sheep, they have four goats but don't need a cow they need pigs, they have four goats but don't need a cow they need turkey and so on.


The other category would be of those who need a cow, but don't have four goats they have pigs, they need a cow but don't have four goats they have sheep, they need a cow but don't have four goats they have chicken, and so on.


You would therefore, end up with a market whereby what you want is readily available, and what you have to offer is very much needed, but because of the luck of compatibility in interest, you get stuck with what you have to offer.


Because of this problem of incompatibility in interests, someone came up with a revolutionary idea, this idea was that of a universal form of exchange, otherwise known as money. With this form of exchange, whatever good or service you had to offer, could have its value converted into the universal form of exchange.


If you had a cow, but needed four goats, rather than going through the grueling process of looking for someone who needs a cow and has four goats, all you had to do is to convert the value of your cow, into this universal form of exchange and then use that form of exchange, and exchange it with whoever has four goats.


This revolutionized trade big time in a sense that, all those people you couldn't do business with before, you could now do business with. Those who needed a cow, but had something you don't need, could now exchange what they have with whoever needs it, in return for the universal form of exchange otherwise called money.


They then could exchange that money with whoever has a cow, in this case, you. You would then take that form of exchange (money) you've received for your cow, and exchange it with anyone who has four goats, because what you have for exchange is universally accepted by everyone.


In other words, the idea of the universal form of exchange, otherwise known as money, solved the problem of incompatibility in interests, it provided a way of converting the value of goods and services, into a form that is universally acceptable. This way goods and services could flow more readily within the market, from where they are not needed to where they are needed.


When you talk about money therefore, you’re talking about the value of the tangible goods and services, but in a fluid form. The importance of understanding this is that, when looking to make money, you’ll know fundamentally what it is you’re looking for. Making money is about acquiring goods and services albeit in a fluid form that’s universally accepted. Accumulating these goods and services however, requires offering goods or services in return. In more ways than one, trade is still about exchanging goods and services for goods or services, except that the value of the goods and services is converted from a fixed form, to a fluid form that can flow more readily in the market place.


That’s all we have to share for now in this article, please remember to leave a comment, share, and join the community. As a member, you can host your own blog posts on the platform, or just reach out, socialize, inspire and be inspired. As always, stay positive and keep looking up.





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