Functions of Money

          Money is anything generally accepted as a means of paying for goods and services and for paying off debts. For something to serve successfully as money, it must be: easily divisible, so that exchanges can take place in small or large quantities; relatively inexpensive to store and transfer; and reasonable stable in value over time. Money must perform three basic functions. Money must serve as a "medium of exchange, " store of value, " and "standard of value".
          Money was first developed to serve as a medium of exchange to facilitate transactions. Primitive economies consisted largely of self-sufficient units or groups that lived by means of hunting, fishing, and simple agriculture. There was little need or occasion to exchange goods or services. As economies became more developed, however, the process of exchange became important. Some individuals specialized, to a degree at least, in herding sheep, raising grain, or making gold as metalsmith. To aid exchange of goods for goods, called barter, tables of relative values were developed from past experience. For example, a table might show the number of furs, measures of grain, or amount of cloth agreed to equal one now. This arrangement eased exchanges, but the process still had many serious drawbacks. For example, if a person had a cow and wanted to trade it for some nuts and furs, he or she would need for a simpler means of exchange led to the development of money, with its relatively low storage and transfer costs, to be used as a medium of exchange.