money, term that actually refers to two concepts: the abstract unit of account in terms of which the value of goods, services, and obligations can be compared; and anything that is widely established as a means of payment. Frequently the standard of value also serves as a medium of exchange, but that is not always the case.

Evolution

Many ancient communities, for instance, took cattle as their standard of value but used more manageable objects as means of payment. Exchange exchange, mutual transfer of goods, money, services, or their equivalents; also the marketplace where such transfer occurs, such as a stock exchange or a commodity exchange.
..... Click the link for more information. involving the use of money is a great improvement over barter, since it permits elaborate specialization and provides generalized purchasing power that the participants in the exchange may use in the future. The growth of monetary institutions has largely paralleled that of trade and industry; today almost all economic activity is concerned with the making and spending of money incomes.

From the earliest times precious metals have had wide monetary use, owing to convenience of handling, durability, divisibility, and the high intrinsic value commonly attached to them. Whether an article is to be regarded as money does not, however, depend on its value as a commodity, except where intrinsic worth is necessary to make it generally acceptable in exchange; the relation between the face value of an object used as money and its commodity value has actually become increasingly remote (see coin coin, piece of metal, usually a disk of gold, silver, nickel, bronze, copper, aluminum, or a combination of such metals, stamped by authority of a government as a guarantee of its real or exchange value and used as money .
..... Click the link for more information. ). Paper currency first appeared about 300 years ago; it was usually backed by some "standard" commodity of intrinsic value into which it could be freely converted on demand, but even during the early development of currency, issuance of inconvertible paper money, also called fiat money fiat money (fī`ət, fī`ăt)
..... Click the link for more information. , was not infrequent (see, for example, Law, John Law, John, 1671–1729, Scottish financier in France, b. Edinburgh. After killing a man in a duel (1694) he fled to Amsterdam, where he studied banking. Returning to Scotland (1700), he proposed to Parliament plans for trade and revenue reforms and published
..... Click the link for more information. ). The world's first durable plastic currency was introduced by Australia in a special issue in 1988 and in a regular issue in 1992. Plastic bills are more resistant to counterfeiting than paper, and a number of countries now issue some plastic currency.

The importance of money has been variously interpreted. While the advocates of mercantilism mercantilism (mûr`kəntĭlĭzəm), economic system of the major trading nations during the 16th, 17th, and 18th cent.
..... Click the link for more information. tended to identify money with wealth, the classical economists, e.g., John Stuart Mill Mill, John Stuart, 1806–73, British philosopher and economist. A precocious child, he was educated privately by his father, James Mill. In 1823, abandoning the study of law, he became a clerk in the East India company, where he rose to become head of the
..... Click the link for more information. , usually considered money as a veil obscuring real economic phenomena. Since the mid-20th cent., a group known as the monetarists has given increasing attention to the role of money in determining national income and economic fluctuations.

The Monetary System of the United States

The monetary system of the United States was based on bimetallism bimetallism (bīmĕt`əlĭz'əm)
..... Click the link for more information. during most of the 19th cent. A full gold standard was in effect from 1900 to 1933, providing for free coinage of gold and full convertibility of currency into gold coin; the volume of money in circulation was closely related to the gold supply. The passage of the Gold Reserve Act of 1934, which put the country on a modified gold standard, presaged the end of the gold-based monetary system in domestic exchange. Under this system, the dollar was legally defined as having a certain, fixed value in gold. While gold was still thought to be important for maintenance of confidence in the dollar, its connection with the actual use of money was at best vague. The 1934 act stipulated that gold could not be used as a medium of domestic exchange. More recently, a number of measures have de-emphasized the dollar's dependence on gold; since the early 1970s, practically all U.S. currency, paper or coin, is essentially fiat money.

Under the Legal Tender Act of 1933, all American coin and paper money in circulation is now legal tender, i.e., under the law it must be accepted at face value by creditors in payment of any debt, public or private. Most of the currency circulating in the United States consists of Federal Reserve notes, which are issued in denominations ranging from $1 to $100 by the Federal Reserve System, are guaranteed by the U.S. government, and are secured by government securities and eligible commercial paper. A small fraction of the currency supply is made up of the various types of coin, none of which has a commodity value equal to its face value. Finally, an even smaller part of the circulating currency is composed of bills that are no longer issued, such as silver certificates, which were redeemable in silver until 1967; bills in denominations between $500 and $100,000, which have not been issued since 1969; and $2 bills, which have not been issued since 1979. Today, currency and coin are less widely used as a means of payment than checks, debit cards debit card, card that allows the cost of goods or services that are purchased to be deducted directly from the purchaser's checking account. They can also be used at automated teller machines for withdrawing cash from the user's checking account.
..... Click the link for more information. , and credit cards credit card, device used to obtain consumer credit at the time of purchasing an article or service. Credit cards may be issued by a business, such as a department store or an oil company, to make it easier for consumers to buy their products.
..... Click the link for more information. ; demand deposits (checking accounts) are, therefore, generally considered part of the money supply. Starting in 1996, the Federal Reserve undertook the redesign of all paper bills, chiefly to deter a new wave of counterfeiting counterfeiting, manufacturing spurious coins, paper money, or evidences of governmental obligation (e.g., bonds) in the semblance of the true. There must be sufficient resemblance to the genuine article to deceive a person using ordinary caution.
..... Click the link for more information. that uses computer computer, device capable of performing a series of arithmetic or logical operations. A computer is distinguished from a calculating machine, such as an electronic calculator , by being able to store a computer program (so that it can repeat its operations and make
..... Click the link for more information. technology; further changes, including colors in addition to green, were introduced in 2003. (See banking banking, primarily the business of dealing in money and instruments of credit. Banks were traditionally differentiated from other financial institutions by their principal functions of accepting deposits—subject to withdrawal or transfer by check—and of
..... Click the link for more information. ; on the regulation of the supply, availability, and cost of money, see Federal Reserve System Federal Reserve System, central banking system of the United States. Established in 1913, it began to operate in Nov., 1914. Its setup, although somewhat altered since its establishment, particularly by the Banking Act of 1935, has remained substantially the same.
..... Click the link for more information. and interest interest, charge for the use of credit or money, usually figured as a percentage of the principal and computed annually. Simple interest is computed annually on the principal.
..... Click the link for more information. .) Certain assets, sometimes called near-monies, are similar to money in that they can usually be readily converted into cash without loss; they include, for example, time deposits and very short-term obligations of the federal government. Funds that are frequently transferred from country to country for maximum advantage are called hot monies. The technical definition of the nation's aggregate money supply includes three measures of money: M-1, the sum of all currency and demand deposits held by consumers and businesses; M-2 is M-1 plus all savings accounts, time deposits (e.g., certificates of deposit), and smaller money-market accounts; M-3 is M-2 plus large-denomination time deposits held by corporations and financial institutions and money-market funds held by financial institutions.

Electronic Money

Electronic payment systems, already in place for use by credit-card processors, were adapted in the 1990s for use in electronic commerce (e-commerce e-commerce, commerce conducted over the Internet , most often via the World Wide Web . E-commerce can apply to purchases made through the Web or to business-to-business activities such as inventory transfers.
..... Click the link for more information. ) on the Internet Internet, the, international computer network linking together thousands of individual networks at military and government agencies, educational institutions, nonprofit organizations, industrial and financial corporations of all sizes, and commercial enterprises
..... Click the link for more information. . Such "digital cash" payments allow customers to pay for on-line orders using secure accounts established with specialized financial institutions; related technology is used for on-line payment of bills.

Bibliography

See J. M. Keynes, General Theory of Employment, Interest, and Money (1936); J. Niehans, The Theory of Money (1980); J. Wheatley, An Essay on the Theory of Money and Principles of Commerce (1983); A. Schwartz, Money in Historical Perspective (1987); J. Hicks, A Market Theory of Money (1989); C. Rogers, Money, Interest and Capital (1989); J. Goodwin, Greenback: The Almighty Dollar and the Invention of America (2002).

money

Commodity accepted by general consent as a medium of economic exchange. It is the medium in which prices and values are expressed; it circulates from person to person and country to country, thus facilitating trade. Throughout history various commodities have been used as money, including seashells, beads, and cattle, but since the 17th century the most common forms have been metal coins, paper notes, and bookkeeping entries. In standard economic theory, money is held to have four functions: to serve as a medium of exchange universally accepted in return for goods and services; to act as a measure of value, making possible the operation of the price system and the calculation of cost, profit, and loss; to serve as a standard of deferred payments, the unit in which loans are made and future transactions are fixed; and to provide a means of storing wealth not immediately required for use. Metals, especially gold and silver, have been used for money for at least 4,000 years; standardized coins have been minted for perhaps 2,600 years. In the late 18th and early 19th century, banks began to issue notes redeemable in gold or silver, which became the principal money of industrial economies. Temporarily during World War I and permanently from the 1930s, most nations abandoned the gold standard. To most individuals today, money consists of coins, notes, and bank deposits. In terms of the economy, however, the total money supply is several times as large as the sum total of individual money holdings so defined, since most of the deposits placed in banks are loaned out, thus multiplying the money supply several times over. See also soft money.

See digital money.

Money