How Money Has Changed

What is money? It can be anything people want it to be--literally.

It is easy to think of money as dollar bills and quarters, but money is anything that a majority of people can agree on as a means of exchange. If enough people in one town are willing to accept donuts as money, then donuts are money--at least for the people in that town. They might run into trouble when they try to spend those donuts in other towns, however.

Before coins or paper money, people exchanged (traded) fish for stone tools or leather goods for wood. This method of exchanging one thing for something else is called barter. It is still in use today: Sue might agree to fix Ramon's electrical wiring if Ramon agrees to figure Sue's income tax. They've exchanged services, not goods, but they've still bartered.

The difference between barter and money is the situation. Money can be used in most situations; in a barter, each individual must have something to exchange that the other individual needs or wants. Sue and Ramon can agree to swap electrical work for accounting, but Harold, another accountant, might insist on being paid in dollars and cents. Harold may not need any electrical work done, and he can spend dollars anywhere.

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