About Money, History, Functions, Terms, Types, and Theories

Not everyone knows the meaning of money. Though every day looking for it. Almost all goods in the world can be purchased with other names and objects. Let alone when alive, before birth and after death many humans still need money.
Material for making money from paper and ordinary metal. Nor silk, gold or silver. Even so, the value of money is very high. Try exchange with other items. Certain money is valued according to the nominal stated. In fact, material prices or intrinsic value are cheaper.

The function of money is very much. Not only as a transaction tool. The history of money is also long. Starting from the barter system to the human need for trading instruments. The details will be described below. Its time for your curious about the terms and types of money in the future.

Money, Meaning.

Divided into two, namely as follows:

In traditional economics, the definition of money is defined as a medium of exchange. Not only money like now, other objects such as gold, silver, even salt can also be used as goods money. The condition is that the object is generally accepted by all local people.

Modern economics defines the meaning of money more broadly. Not only as a means of payment for the sale and purchase of goods, services, and other assets, but also payment of the debt. Some experts cite the money function as a deferral payment tool.

History

Instead of paper and metal money now, exchanging goods in barter was not yet known to humans. Life at that time was not as complex as it is now. Humans fulfill their own needs very simply

They go hunting if they are hungry. Need clothes to make with animal skins or trees. Want to eat other foods, go to the forest to find and pick the desired fruit. So-on.

But as time went on, the needs of human life increased a lot. What they get cannot meet their own needs as a whole. Then look for ways to exchange goods between individuals with each other. This method is known as the barter system.

Barter system

The barter system is used for quite a long time, for centuries. Until finally humans find obstacles to the system because life is more complex.

Constraints on the barter system, for example, are difficult to find in two goods owners who need each other. For example, Si A has fruit and needs fish, he finds it with B who has fish but the need is not fruit, but clothes.

Goods money

Facing a problem like the one above, humans think again to find new solutions. Namely using certain objects as a medium of exchange. Specified objects are usually generally accepted. For example, in ancient Rome using salt.

If illustrated in the A and B above, then like this. A meet the salt producer and exchange it for fruit. After the salt is owned, then meet B who has fish. Despite the need for clothes, B receives salt because it has been designated as item money. So that B will be easier to exchange with other people who have clothes.

Although it is easier than the barter system, as the development of human life is more complex, the goods money system has weaknesses as well. This is because the goods money does not have a small fraction so that it is difficult to determine the value, storage, and transportation that is difficult, and easily destroyed or does not last long.

Finally, look for objects that have the following conditions:

• Generally accepted
• Easier to carry, and durable

The object is coins that are made of gold and silver.

At that time the owner of the coin was fully entitled to the money. He is free to hoard as much as possible and even forging into jewelry is not prohibited. Until the fear arose, the more advanced trade could not be served by coins. This is due to the limited amount of gold and silver.

Moreover, coins will also encounter other obstacles if in large-scale exchange transactions. The more amount needed, of course, will be difficult to transfer. Until finally the paper money was created.

However, make no mistake. Paper money circulating at that time was proof of ownership of gold or silver. The papers are guaranteed one hundred percent by gold and silver stored in clever. At any time this money can be exchanged again with a full guarantee.

In further developments, this is the forerunner to the money we use today. People no longer use gold directly for transactions. They prefer to use proof papers.

Function

As explained above, the function of money as an intermediary for exchanging goods with goods avoids the barter system which has many obstacles, so that trading transactions are expected to be easier. However, in more detail, it can be divided into two. Namely the original function and derivative functions.

The original function is divided into three:

1. Money functions as a medium of exchange or a medium of exchange that can facilitate an exchange
2. Money also functions as a unit of account: Shows the value of goods/services (price indicator), and as a unit of calculation that facilitates exchange.
3. In addition, money serves as a store of value.

The derivative function is divided into:

1. Money as a legitimate payment instrument.
2. Money as a means of payment of a debt.
3. Money as a hoarder of wealth.
4. Money as a means of transferring wealth.
5. Money is a driving force for economic activity

Money terms

An object can be used as money if it meets the following conditions:

1. It must be accepted in general (acceptability)
2. To meet the criteria for point 1, the object must be of high value or at least guaranteed by the government
3. Made from materials that can last long (durability)
4. The quality is the same (uniformity)
5. The amount can meet the people's needs for the money
6. Not easy to scar (scarcity)
7. Easy to carry (portable)
8. Easy to share without reducing the value (divisibility)
9. It has a tendency to be stable over time (stability of value).

Type of money

Based on the type, money is divided into two. Namely currency and demand deposits.

1. Currency is a legitimate payment instrument and must be used by the community in conducting common money transactions.
2. Demand deposits are money owned by the community in the form of deposits (deposits) that can be withdrawn as needed, for example, checks.

Theory

The theory of the value of money is divided into two. That is a static money theory and dynamic money theory.

• Static money theory

This theory is called static because it does not question changes in the value of money caused by economic development. This theory was made with the aim of answering questions such as: what is money? Why does money have a price? Why the money has to circulate?

This theory includes:

1. Metallic theory. A theory that is almost the same as understanding the intrinsic value.
2. Convention theory. The theory that money is generally accepted in the community is based on an agreement/consensus.
3. Nominalism theory. This theory states the receipt of money based on the value of its purchasing power.
4. Country theory. This theory states that money is an object determined by the state which functions as a medium of exchange and a means of payment. So the value is set by the government regulated by law.

• Dynamic money theory

If the above theory does not question changes in the value of money, then this dynamic money theory is the opposite.

This theory includes:

1. Quantity theory. In this theory, David Ricardo states that the value of money is very strong or weak depending on the amount of money in circulation. Then Irving Fisher refined the above theory by stating that it not only depends on the amount but also on the speed of circulation of money, goods, and services as a factor that influences the value of money.
2. Cash Inventory Theory. This theory states that changes in the value of money depending on the amount of money that is not bought for goods.
3. Production cost theory. This theory states the value of money in circulation derived from metal and that money can be seen as goods.

That is the discussion about money. Starting from understanding, history, functions, terms, types, and to the theory. If there is something wrong, want to correct, add other information, or just ask, please write in the comments column below.

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