Is Money the Root of All Evil?
Is money (or the love of money) the root of all evil? Some people claim this to be true. Would people still commit crimes in an economy without money? The answer is “yes”. Some crimes involve no money (relationship abuse, control issues, etc.). Or in the case of theft, people would steal things instead of money. Money probably makes it easier to commit crimes (it’s easier to rob a bank than to steal 1,000 chickens from a farm), but most people would agree that even without money, it’s human nature and not money itself that encourages some people to engage in evil acts.
An Economy without Money
Money has existed in many different forms throughout human history: salt, tobacco leaves, cigarettes, gold, and silver. Today it includes coins, paper bills, and electronic entries. Can an economy exist without money?
In a barter economy, goods and services are directly traded for other goods and services, and no money is used. It is possible for such an economy to exist. However, trading is inconvenient and time-consuming, because buyers and sellers face double coincidences of wants. Let’s say that you are a sandal-maker and you would like to buy milk. In order to trade, you would need to find a person who not only sells milk, but also wants to buy sandals. Then if you find such a person, you will need to negotiate for a while how many bottles of milk equals one pair of sandals.
With money present, you simply sell your sandals to anyone who wants sandals and receive money in exchange. Then with your money you find anyone who wants to sell you milk at the going equilibrium price. Money makes trading more convenient. More trading allows us to increase our specialization. Greater specialization increases our standard of living.
The Functions of Money
Money serves the following three important functions.
1. Medium of exchange.
Money allows you to exchange any product for money. Then with this money you can buy any other product. Thus, money makes it easier, more convenient, and less time-consuming to trade.
2. Standard of value.
Without money, it is more difficult to reach an
agreement regarding the terms of trade. How many oranges are worth one banana? A money system allows us to put values on the goods and services we buy and sell. If an orange sells for $1 in the grocery store and a banana for $.50, then 1 orange is worth 2 bananas.
3. Store of value.
By exchanging goods and services for money, you can accumulate money and increase your wealth. If you are dairy farmer, you can sell your milk and butter each season for money, deposit it in a bank, and save it for future use.