The Function of Money and its Future

Originally exchange took place without the use of money, by barter. Long before money had come into the commercial world people exchanged goods for goods. This system of barter made it possible to satisfy many wants that would otherwise have gone unsatisfied. Barter raised the standard of living, but under such a system the exchange of goods was greatly hampered. To barter requires that both buyer and seller need each other’s goods. Again, indivisible quantities hindered the exchange, since half a canoe or half a cow could not enter into barter. Nor was there under the barter system any standard of value. A ratio was expressed between canoes and arrows if they were traded for each other, but such an exchange gave no hint as to the ratio of bread to meet, or even of canoes to meet. Because of these disadvantages money was introduced into the commercial system as an intermediary, for which all goods could be sold and with which all goods could be bought. Thus money serves its first function, as a medium of exchange.

Money is a medium of exchange universally acceptable for goods and services. Originally the medium was the commodity most common in the trade of the time...