Money makes the world go around. Economies rely on the exchange of money for products and services. Economists define money, where it comes from, and what it’s worth. Here are the multifaceted characteristics of money.
- Money is a medium of exchange; it allows people to obtain what they need to live.
- Bartering was one way that people exchanged goods for other goods before money was created.
- Like gold and other precious metals, money has worth because for most people it represents something valuable.
- Fiat money is government-issued currency that is not backed by a physical commodity but by the stability of the issuing government.
Medium of Exchange
Before the development of a medium of exchange—that is, money—people would barter to obtain the goods and services they needed. Two individuals, each possessing some goods the other wanted, would enter into an agreement to trade.
Early forms of bartering, however,