Functions of Money
Money is held to serve multiple distinguished but related functions, of which a "standard of deferred payment" is one. The most commonly distinguished functions of money are as a medium of exchange, a unit of account, a store of value, and, sometimes, a standard of deferred payment, summarized in a mnemonic rhyme of older economics texts:
- "Money is a matter of functions four, a medium, a measure, a standard, a store."
However, many newer texts do not distinguish the function of a standard of deferred payment, subsuming it in other functions.
Being a standard of deferred payment is one of the functions of money; it is distinct from:
- the medium of exchange function which is used for immediate payments, not deferred payments and requires durability when used in trade, and a minimum of opportunity to cheat others — as the diamond or gold example below illustrate;
- the store of value function, which relates to the saving, storing, and retrieval of value; and
- from the unit of account function which requires fungibility so accounts in any amount can be readily settled.
When currency is stable, money can serve all four functions. When it is not, or when complex and volatile forms of financial capital are involved, some may wish to identify a single standard of deferred payment to avoid cheating by selecting a denominator of debt that one believes to be dropping in value.
Read more about this topic: Standard Of Deferred Payment
Famous quotes containing the words functions of, functions and/or money:
“When Western people train the mind, the focus is generally on the left hemisphere of the cortex, which is the portion of the brain that is concerned with words and numbers. We enhance the logical, bounded, linear functions of the mind. In the East, exercises of this sort are for the purpose of getting in tune with the unconscious—to get rid of boundaries, not to create them.”
—Edward T. Hall (b. 1914)
“In today’s world parents find themselves at the mercy of a society which imposes pressures and priorities that allow neither time nor place for meaningful activities and relations between children and adults, which downgrade the role of parents and the functions of parenthood, and which prevent the parent from doing things he wants to do as a guide, friend, and companion to his children.”
—Urie Bronfenbrenner (b. 1917)
“Want of money and the distress of a thief can never be alleged as the cause of his thieving, for many honest people endure greater hardships with fortitude. We must therefore seek the cause elsewhere than in want of money, for that is the miser’s passion, not the thief’s.”
—William Blake (1757–1827)