# what is money?

Money is any item or verifiable record that can be used as payment for goods and services. It is the means of moving economic value across time and space.

### why money?

Before the invention of money, value was transferred with **the Barter system**.

Barter is the exchange of goods or services between parties without the use of money or other monetary instruments like a cheque or debit card.

In the barter system, one party supplies a good or service in exchange for another party providing a good or service. For example, I could exchange 3 tubers of yam for a sack of potatoes.

The problem with barter was that it was hard to find people who had what you wanted and wanted what you had - **the problem of coincidence of wants**.

The problem of coincidence of wants could be further broken down into:

1. **Lack of coincidence in scale**. This happens when what you want is not equal in value to what you have and dividing it may not be practical. For example, you can't exchange a biro for bits of a house as you can't divide the house into small pieces to match the value of the pen.
2. **Lack of coincidence in time frame.** This happens when what you have is perishable. It would be hard to find enough tomatoes to exchange for a car before they rot.
3. **Lack of coincidence in location.** It would be hard to barter if the person who had what you wanted was far away from you.

The solution to the problem of coincidence of wants would be to find a good that you think someone else might like  - the desirable good - and then find someone to exchange that good for what you already have.&#x20;

A widely used desirable good could be whale teeth, shells barley or even feathers.

After this, you can exchange the desirable good for what you want.

The desirable good is called a **medium of exchange**.

A single medium of exchange for everyone to trade their goods for would be more efficient and ease transactions.

This medium of exchange is money.

### properties of money

Sound money is more than a medium of exchange and should be a unit of account for pricing goods and services and a method of storing value.

In history, a good unit of account depended on the ability to record a count.

A significant form of money serving as a unit of account in history was the tally stick.

### what can be money?

Anything can be money. Yet, to serve as sound money, an item must solve the problems of barter - saleability across scale, across space, and across time.

Money as a desired good has changed form over centuries – from natural objects to coins to paper to digital versions.

Whatever the format, human beings have used money as a means of exchange, a method of payment, a store of value and a unit of account.
