Q:

Why is money as a medium of exchange so important in society?

A:

Quick Answer

Though it has no intrinsic value, money acts as a universal medium of exchange that can stand in for other goods and services. In this way, money acts as a repository of surplus value. Goods are produced and exchanged for money that is then used for acquiring other goods, as explained by Victoria Pynchon on Forbes.com.

Continue Reading

Full Answer

In a barter economy, the exchange of goods and services depends on what Pynchon cites as an example of the economic "double coincidence of wants." To get a keg of nails from a blacksmith, for instance, a person has to determine what the blacksmith wants in exchange. If the blacksmith wants a side of beef that the person does not have, then no transaction can take place.

Money bridges that gap. As described by About.com, a universal medium like money is always desirable and therefore, is always exchangeable for goods and services. To get that keg of nails, side of beef or any other product, it is no longer necessary to hunt for a particular good for bartering. Simply negotiate a price in cash and make the exchange. Since money is, in principle, accepted by everyone, the only limit to the goods a person can purchase with it is the amount of money he happens to possess.

Learn more about Currency & Conversions

Related Questions

Explore