>> We all use money every day.

But you may not realize
that the stuff

in your wallet is actually a
complicated, amazing invention.

The economists argue that
money fulfills three roles.

First, it's a store of value.

If you get paid today but
you aren't going on vacation

until the summer,
money's ability

to store value allows you to
move purchasing power from today

into the future where
you'll use it.

Without money we would have to
store commodities like wheat

or gallons of gasoline
to trade in the future.

Second, money is
a unit of account.

If we didn't have money,

we would all be bartering
with each other.

A shirt would trade for 30
eggs and a hammer would trade

for five gallons of milk.

Money simplifies
this dramatically

by providing a common, uniform
way of valuing each good.

The hammer is 20 dollars.

The gallon of milk
is four dollars.

Third, money is a
medium of exchange.

Without money if the
carpenter wanted to eat,

she'd have to have a
farmer who wanted a house.

If the teacher wanted clothes,
he'd have to find a tailor

who had kids needing
to be taught.

With money we can trade

with anyone using a general
purpose unit of value

that everyone will accept.

The fact that money needs

to fulfill these three roles
narrows down our options

for what we can actually
use for money.

In order to be a store of
value, money has to be durable.

That rules out things like
eggs, ice cubes, or tomatoes.

On the other hand, metal

or thick paper seems
to work pretty well.

In order to be a
unit of account,

units of money need
to be identical.

So rocks or chickens won't work.

But before they were banned
cigarettes became a form

of currency in prisons largely
because they were all identical.

And, of course, coins and bills
are identical so those work.

In order to be a medium of
exchange, units of money need

to be divisible and
transportable.

You need to be able to take
your pay check and cut it

up for your rent, grocery
bill, and utilities.

Then you need to move it to
the person you're paying.

Again, coins and bills
work well as do cigarettes.

Ingots of steel are hard to
move and harder to cut up.

Cows and horses are movable

but they lose value
when you cut them up.

So that's why money
takes the form it does.

It serves as a store of value,
a unit of account, and a medium

of exchange which means it
has to be durable, identical,

divisible, and transportable.