People are so accustomed to money that they don’t even wonder what banknotes and coins really are. One of the very first definitions of economics is that the universal equivalent of the value of goods and services is money, but how do you explain this term to those who have not studied economics? After all, money was not always, and not everyone needs to become financiers. To use the tool, just figure out what it is for and how it works.
Barter exchange and its disadvantages
Initially, commodity relations began as a normal barter exchange. This method of exchanging material values has its drawbacks, because it is quite difficult to choose the type of barter that suits both parties. The simplest example: a fisherman can exchange his catch for game obtained by the hunter, but only on condition that the hunter really needs fish. If the hunter does not need fish, but something else that is not currently offered for exchange, then both are in a difficult position. Or, one of the parties does not need the quantity of goods that the initiator of the exchange wishes to receive. People needed a tool to facilitate commodity relationships, and it appeared.
Different nationalities used different objects: shells, skins of a furry beast, a certain type of pebbles, and gold nuggets. The best equivalent of the cost of goods and services is a certain item that can be stored for a sufficiently long time, which has a certain value in itself, and at the same time allows you to “split up” the cost of goods. So there was money.
Universal liquidity product
Money itself is a commodity: it needs to be produced or, as in the case of the first primitive substitutes for finance, to be obtained. And this product has a high degree of liquidity, that is, it is valued almost always, it can be exchanged at any time for other goods or other values.
Thus, at the moment, the only equivalent of the cost of goods and services is money, but each country has its own financial system and its own type of finance. The best illustration of the fact that money is a commodity is the exchange rate - financial units of different countries have different values in relation to each other.
The fair equivalent of the value of goods and services is money
So, we decided that the goods can be exchanged for money, that is, sold. Services should be considered as a kind of product. If someone spends his time and energy, and this is claimed by a party that is ready to pay for someone else's efforts, then there is not much difference between the service and the goods as a material unit. Buying, selling, as well as paying for someone else's efforts ultimately come down to an exchange, but money acts as an intermediary value. Thus, trade is the equivalent of exchange: goods and services are exchanged for other goods and services, but with an intermediate phase, namely, exchange for money, which can then be exchanged for necessary goods.
This inevitably raises such a burning issue as cost or price. By and large, a product or service costs as much as the buyer is willing to pay for it. This parameter can be artificially controlled by inflating the value of certain items or services. It turns out that the mutual equivalence of goods or services is determined by their "course" - the value at which they are bought or sold. From here the concepts of high cost or, on the contrary, low cost come from.
Some financial processes
Despite the fact that we use money as the equivalent of all kinds of values, even intangible ones, they remain a commodity and, therefore, have their own added value. For example, the loan funds that we receive by paying the percentage of their assigned banks. In fact, this percentage is value added, because in the end you have to pay for the goods received.
Also, money has to be produced, and this, in turn, also requires money. If the purchasing power of a financial unit is reduced, that is, one conditional note can buy less goods today than yesterday, this process is called inflation. Money is becoming cheaper, and for the consumer it is certainly a negative process, although it is quite natural.
The study of money and their opportunities gives a chance to slightly change the attitude towards the so-called wealth - the presence of a large stock of material assets in monetary terms. After all, if we know how the tool works, then it becomes easier to use.