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Third, money serves as a unit of account    , which means that it is the ruler by which other values are measured. For example, an accountant may charge $100 to file your tax return. That $100 can purchase two pair of shoes at $50 a pair. Money acts as a common denominator, an accounting method that simplifies thinking about trade-offs.

Finally, another function of money is that money must serve as a standard of deferred payment    . This means that if money is usable today to make purchases, it must also be acceptable to make purchases today that will be paid in the future . Loans and future agreements are stated in monetary terms and the standard of deferred payment is what allows us to buy goods and services today and pay in the future. So money    serves all of these functions— it is a medium of exchange, store of value, unit of account, and standard of deferred payment.

Commodity versus fiat money

Money has taken a wide variety of forms in different cultures. Gold, silver, cowrie shells, cigarettes, and even cocoa beans have been used as money. Although these items are used as commodity money    , they also have a value from use as something other than money. Gold, for example, has been used throughout the ages as money although today it is not used as money but rather is valued for its other attributes. Gold is a good conductor of electricity and is used in the electronics and aerospace industry. Gold is also used in the manufacturing of energy efficient reflective glass for skyscrapers and is used in the medical industry as well. Of course, gold also has value because of its beauty and malleability in the creation of jewelry.

As commodity money, gold has historically served its purpose as a medium of exchange, a store of value, and as a unit of account. Commodity-backed currencies are dollar bills or other currencies with values backed up by gold or other commodity held at a bank. During much of its history, the money supply in the United States was backed by gold and silver. Interestingly, antique dollars dated as late as 1957, have “Silver Certificate” printed over the portrait of George Washington, as shown in [link] . This meant that the holder could take the bill to the appropriate bank and exchange it for a dollar’s worth of silver.

A silver certificate and a modern u.s. bill

Two images are shown. The bottom image is a silver certificate—U.S. paper currency from 1957 or earlier. The top image is of a modern U.S. currency which no longer indicates that it is commodity-backed, but which is still legal tender for all debts.
Until 1958, silver certificates were commodity-backed money—backed by silver, as indicated by the words “Silver Certificate” printed on the bill. Today, U.S. bills are backed by the Federal Reserve, but as fiat money. (Credit: “The.Comedian”/Flickr Creative Commons)

As economies grew and became more global in nature, the use of commodity monies became more cumbersome. Countries moved towards the use of fiat money    . Fiat money has no intrinsic value, but is declared by a government to be the legal tender of a country. The United States’ paper money, for example, carries the statement: “THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE.” In other words, by government decree, if you owe a debt, then legally speaking, you can pay that debt with the U.S. currency, even though it is not backed by a commodity. The only backing of our money is universal faith and trust that the currency has value, and nothing more.

Watch this video on the “History of Money.”

Key concepts and summary

Money is what people in a society regularly use when purchasing or selling goods and services. If money were not available, people would need to barter with each other, meaning that each person would need to identify others with whom they have a double coincidence of wants—that is, each party has a specific good or service that the other desires. Money serves several functions: a medium of exchange, a unit of account, a store of value, and a standard of deferred payment. There are two types of money: commodity money, which is an item used as money, but which also has value from its use as something other than money; and fiat money, which has no intrinsic value, but is declared by a government to be the legal tender of a country.


Hogendorn, Jan and Marion Johnson. The Shell Money of the Slave Trade . Cambridge University Press, 2003. 6.

Questions & Answers

Enumerate emotional intelligence to a manager
Chinonso Reply
What about Sydney Alexander's Absorption approach in international trade?
Vibhas Reply
I need help in inflation graphs
Brandon Reply
Select inflation type, Demand pull, cost pull or anticipation 1- Select the set of data you intend on graphing i.e inflation rate of 2017, location (particular country) 2 - Select the type of measurement tool that best allows you to input the inflation data, Consumer price index is the most accurate
this is to make sure you have all the correct information, Also use should know 1- Cost pull is Aggregate Demand and Aggregate Supply AD - AS graphed 2- Demans pull is Aggregate Supply and Aggregate Demand AS - AD graphed
what is production
Imoro Reply
what is a monopolistic competition?
moniman Reply
Enumerate emotional intelligence to a manager
Enumerate emotional intelligence to a manager
who is barter
Tening Reply
exchange goods each other
what is economic
is the use of scares resources to satisfy our unlimited needs and wants
how many kinds of utility functions?
What is partnership?
the legal association of two or more people as co-owners of a business for profit.
Would you expect the kinked demand curve to be more extreme (like a right angle) or less extreme (like a normal demand curve) if each firm in the cartel produces a near-identical product like OPEC and petroleum? What if each firm produces a somewhat different product?
James Reply
what is supply
Mizta Reply
what is opportunity cost
The opportunity gained interms of opportunity lost is known as opportunity cost Or The second best alternative use of resources
forgone alternative: like forgoing Something our of two to buy one
what is macro economic s
Addo Reply
macroeconomics is the study of economic as a whole level.
meaning of positive science
Sumit Reply
positive science it is focused on facts and cause and effect and behavioural relationship and include developmental testing in economic theoreis.
what is inflation
Sama Reply
inflation is the general price increase of goods and services in an economy.
Inflation is the persistent rise in the general price level
inflation is characterized by increase in the general price of goods and services. when there is too much money in circulation. increase in demand of goods pursuing fewer goods. when purchasing power of money decreases .
inflation is the persistent rise general price level
inflation is the persistent increase in price
how are you
increase in the general level of price...
what is deflation
is the gradual decrease of currency exchange in a country.
why ecnomics important ? give answer plz
Because is a field of science study that reflects on our day to day activities with human behavior.
why economic is a science
Economics is referred to as a social science not a pure science. It's regarded as a social science because it makes use of the scientific method to solve problems. The scientific method refers to observation, asking questions, forming hypothesis, experimentation etc
Economics is a social science because it study human behavior how he relates with his daily activities with the available limited resources to satisfy his wants.
what are the factors affecting the demand
yeah it uses the scientific method to study human behaviour.
inflation referes to the persistant increase in the general price of goods and services over a given period of time say a year.
factors affacting Demand of good and services are 1.price of a commodity in question 2.price of related commodity 3.Income of a consumer 4.Population 5.tast and prefereance 6.Season or weather condition
what is difference between perfect and non perfect market.
what the difference between Trade off and Opportunity Cost?
In trade off, you increase the amount of something by decreasing the amount of something else. For example, you use 2 hours to study and 2 hours for leisure. if you increase study hour by 1 more hour, i.e 3 hours, leisure time will decrease by 1 hour, i.e 1 hour.
In all, you would have traded off 1 hour of leisure time for 3 hours of study time. But in opportunity cost, you let something go in order to obtain something else entirely.
thanks for your idea
please i want help on thid question given P=$10 And TC=120+4Q2 1.find the profit maximizing level of price and quantity. 2.what will be the total profit?
please how is substitutional effect affecting demand
if a price of a particular commodity is high people demand less ,they rather go for less one
what is account
account is an arrangement between a customer and a bank that allows the customer to play in and take out money (bank account)
pay, not play sorry
different between demand and quantity demand
Farhan Reply
No difference
demand is the overall demand for it
actually theres no difference
quantity demanded is used in Equilibrium of d and s
for evrything else u use deman
the difference of it is that when demand simply denotes the willingness and a person's ability to purchase. And as against quantity demand represent the amount of an economic good or services desire by a consumer at a fixed price .☺
how to calculate inflation
Richard Reply
Explain the factors that have led to high quantity demanded
Ogwang Reply
price of the product increase of price substitute product as people shift to cheap one
what are the methods used by trade union to increase wages of their members?
Black Reply
the size of the commodity
increase demand of labour decrease supply of labour
I do support your answer Jackel.
but how do they do it?
by increasing more labour and reduced the suppliers
they can not increase labour, they increase demand of labour.
how do they increase demand for labor?
by analyzing the market equilibrium , cost reduction and cost control , savings in time .
decreasing supply of labour are achieved through training and certification that require for you to employed, you must have certificate, also trade union encouraged government to restrict migration into the country causing shortage of labour supply. Note that the aim of union is to enhance life
objective of union: better working conditions, liveable wage, protect member from unfair treatment which are done through negotiations betweens representative and management. known as collective bargaining.

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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