Friday, October 14, 2005

The Idea of Money

I recently overheard two people discussing what appeared to be a budget issue. At one point, one of the discussants said to the other, “You always view things from a money point of view.” While I didn’t hear the retort, the comment got me thinking about teaching about the concept of money.

There seems to be a hue and cry for teaching people to handle their money. But I’m not sure anyone wants to discuss the idea of money. I know there are textbooks that talk about the “characteristics” and “functions” of money, usually within a few pages. But I believe that most of us don’t really discuss money.

I’m inclined to define money functionally, and to try to get students to look at it in a similar way. Specifically, I like to talk about money in a traditional way, as a (1) medium of exchange, (2) store of value, and (3) measure of value. While all the functions can help people gain insights about handling money, the first two can be especially helpful. I think they help illustrate the larger role of money in the economy, and on a personal level.

The function of “medium of exchange” speaks to money as an intermediary, a tool to simplify trade. It allows us to specialize in labor and to interact with others without having to offer labor to every person with which we wish to trade. In short, it is a claim against goods and services of others, based on our labor and how the marketplace “values” that labor. (This can also lead into a discussion of the third function listed, but perhaps I will save that for another post on this site.)

The function of “store of value” is also pertinent. For money allows us to accumulate our expended labor for future claims against goods and services. It allows us to lay claim to goods and services at a point in the future, and even to plan for them. But do people see their finances, or the nation’s for that matter, through these lenses? Do they understand that what money allows us to do is to trade the product of our labor, for that of someone else?

To relate this back to the conversation I overheard, the issue becomes not one of money, but what claims to resources (present and future) do they have or will they have. How can they best allocate those claims? Is it possible to do a better job of helping students understand the personal resource choices (family budgets) and larger resource choices (state and national budgets) they face by helping them understand what money is?

Is there advantage to be gained by discussing money and how it is handled from a functional viewpoint? If we do so, can we help students to more easily identify the opportunity cost inherent in each choice? Will it help them see that doing one thing doesn’t come at the expense of “mere money,” but at the expense of other goods and services, either in the present or the future?

Send me your comments.

Posted by TSchilling at 7:28 PM Comments (1)

Good post and I plan to link to your site.

Posted by: Mike at October 24, 2005 7:29 PM

No comments: