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A Basic Insight Into Money’s Role in the Economy and How It Makes the World Go Round

Money has always been an integral part of human civilisation since the cessation of bartering. Having advanced from coins first used in 7th century BCE Western Turkey to paper first used by 9th century ACE China, money has evolved to meet the needs of the evolving economy. Even more recently, the introduction of credit and debit cards, as well as online payments, has increased the convince of paying and further reinforced money’s integration into our society.

Money is often described as a medium of exchange. This is because it can be expected to be redeemed for a good of a similar value. Historically, a currency could often be redeemed for gold which often could be used as a currency itself. This was done to help reinforce the currency’s value and maintain the public’s trust in it. This is known as the gold standard system and was used by many countries including the UK between 1717 and 1931.

Being a business management and economics student, I have a strong understanding of the importance of money. Without money, savings and pensions would be lost and inefficient bartering systems would take place due to a lack of trust, changing the economy for the worse. Therefore, money increases trade which is essential for all businesses.

The advancement of money is a testament to just how essential it is in our economy. Though having access to tools such as Apple Pay and contactless isn’t essential, it highlights how useful money is and how engrained in society it is. Cryptocurrency is one of the more recent advancements in money. These are currencies that don’t rely on a central authority, meaning once created cannot be altered. However, because of this, they are often more volatile than regular currencies. The use of the blockchain also has negative effects on the environment and because of these issues, they are not as popular centralised currencies.

With money, many finance options also are possible such as loans and mortgages. These tools further boost economic growth and therefore provide more people access to creating businesses and innovating with them.

It could be argued that happiness has a larger role to play than money in our modern economy as it provides motivation to be productive. However, money is fundamentally required for long-term happiness, whether to afford healthcare, take part in basic societal activities or even just to stay warn. Without money, it is hard to survive let alone be happy.

Equally education, entrepreneurship and technology could be argued to play a larger part in the economy than money. Though these 3 factors are very important for economic growth, the use of money supplements this and without it, their effects would be much less.

Money also provides the means to save up. Without money, setting aside wealth becomes much harder and inconvenient. This means fewer people would have the means to start businesses, innovate, and contribute further to economic growth. This also applies to pensions and saving to buy more expensive goods as well.

The use of money also has some negative effects. It encourages corruption and inequality. This is supported by the increased income inequality over the past decades. An example of this would be disposable income inequality increasing by 0.9% (ONS, 2023). Corruption has also increased in many third and second-world countries over the past few decades. However, more recently many of these countries have adopted anti-corruption policies and can afford teams to investigate it with their growing economies.

Another downfall of money is that prices can become inflated. This is because wages increase because of economic growth, which lead to a higher consumer spending that cause prices to go up. This leads to a reduction in value of people’s savings which causes a lower buying power.

Circular flow of money is also a large factor in a successful economy. This is how money moves between households, firms, and the government and is only possible due to the nature of money. This also allows for trade between countries, further boosting the economies of both countries and allowing for some level of specialisation.

In conclusion, money is an essential pillar of both modern and past societies. It serves as a medium of exchange and helps to facilitate trade and commerce. Money also creates trust, stability, and predictability in an economy, which is essential for economic growth and development. Though money also has its drawbacks such as contributing to income inequality and corruption. It is necessary for a productive economy and won’t stop being so anytime soon.

Thanks for reading!

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