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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

endogenous and exogenous
Afzaal Reply
What is the role of price system in The market economy
Cyrielle Reply
(1).Income is the main determined of macro economics. (a). true (b). false
Manisha Reply
tell me correct ans with examples!!
what yes yes?
mam actually I want to say that income is not the main determinant of macro economics.
based on your knowledge about the production possibility frontier,demonstrate an assumption of supposed schedule of ppe for the production of rice and face masks by Bangladesh.use graphical representation as well
Ashraf Reply
can you answer this
whats tradeoff
tradeoff is a balance achieved between two desirable but conflicting things
can I read in Hindi?
Rashmi Reply
don't know..
why not
Omid Amini....how?
sure thing
mention two necessities of estimation of national income in india ?
Krishna Reply
what means the supply
Abdourahamane Reply
its means amount of product available right now.
is everything important here🙂
I mean anything*
u can read it
it's mean something needed or wanted
where are from shweta
where are you from shweta
it may mean the stock available
to make something needed or wanted available to someone
is someone who manufactures something
What is the cost-benefit analysis?
Hannah Reply
A cost benefit analysis is a process by which organizations can analyze decisions, systems or projects, or determine a value for intangibles. The model is built by identifying the benefits of an action as well as the associated costs and subtracting the costs from benefits.
Cost benefit analysis is a process used primarily by businesses that weighs the sum of the benefits, such as financial gain, of an action against the negatives, or costs, of that action.
process of cost benefit analysis and decision making crieteria
hello everyone
hello every one,
hello everyone
what is the opportunity cost?
The next best option forgone is call the Opportunity cost of selection one.
who is producer?
rishabh Reply
karan johar
shut up mr.mohd
it's serious question..
shut up mr.mohd
simple who produce good
who is aconsumer?
Ritik Reply
who uses the commodity
a consumer is one that buys good for consumption .
Kanza consumers uses the commodity..
why do we put tariff on import goods
Salam Reply
Maybe to give national enterprises better opportunities than foreign ones... or just to get more money to the national budget in any way possible. I suppose it allows also to control import and therefore its influence on national economy and other countries economy too.
i think to control import or for development of his own industry
what were the events during the great depression that made classical economy tenets ineffective
Alby Reply
please what is the answer for the following question; derive the expression for a two sector Keynesian model from sowotuom land economy and state all the two components in the expression.
Alby Reply
No idea
meaning nature and scope of macroeconomics
Diksha Reply
meaning of macroeconomics
meaning of macroeconomics
meaning of macroeconomics
Macroeconomics covers aggregate or in simple words overall economy of country or world while microeconomics was just concerned with individual economies
Hope this helped you, you can search it more on Google there is a YouTube page by the name of jacob Clifford

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Source:  OpenStax, Macroeconomics. OpenStax CNX. Jun 16, 2014 Download for free at http://legacy.cnx.org/content/col11626/1.10
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