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What Is Money, and Why Does It Exist?

Money Basics • Beginner Investing • 5 min

What this lesson is about

Before there was money, trading required both people to want exactly what the other had. Money exists to solve that problem, and it has looked very different across human history.

2 parts · a quick check after each · then the quiz

Part 1 of 2

Before, money, existed,, trading, was, tricky., You, had, to, find, someone, with, exactly, what, you, wanted,, who, also, wanted, what, you, had., Economists, refer, to, this, as, the, "double, coincidence, of, wants.", It’s, why, money, was, created., A, farmer, with, extra, wheat, needed, shoes., He, had, to, locate, a, shoemaker, who, wanted, wheat, that, day., If, he, couldn’t,, no, trade, would, happen.

Money, serves, three, main, purposes:, it's, a, medium, of, exchange, (something, everyone, accepts, in, trade),, a, store, of, value, (something, that, keeps, its, worth, for, later),, and, a, unit, of, account, (a, way, to, measure, and, compare, different, things,, like, how, many, hours, of, work, equal, one, bicycle).

Why money existsBarter needs a price for every pair. Money needs one per good.

Quick check

What problem does money primarily solve that a pure barter system does not?

Part 2 of 2

Insider, Angle:, Money, has, taken, many, forms, throughout, history., Cattle,, salt,, cowrie, shells,, and, coins, were, all, used, before, paper, currency., The, word, "salary", likely, comes, from, the, Latin, "salarium,", linked, to, "sal,", the, word, for, salt., It, reminds, us, that, pay, has, been, tied, to, whatever, society, trusted, as, money., Today’s, U.S., dollar, is, "fiat", currency., It’s, not, backed, by, gold, or, any, physical, commodity,, only, by, government, support, and, the, trust, that, others, will, accept, it, too., The, connection, to, gold, hasn’t, always, been, absent., In, August, 1971,, President, Nixon, cut, the, dollar’s, last, formal, tie, to, gold,, a, moment, known, as, the, "Nixon, Shock."
Try, This:, Imagine, trading, for, everything, you, need, this, week, without, using, money., List, three, trades, you’d, need, to, make., How, hard, would, it, be, to, find, the, right, person, at, the, right, time, for, each?

Quick check

Which of these is NOT one of the three classic functions of money economists point to?

Quiz

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