What does the statement “Money is not the value for which goods are exchanged, but the value by which they are exchanged.” mean?
What does the statement "Money is not the value for which goods are exchanged, but the value by which they are exchanged." mean?
byu/SalemIII inAskEconomics
Posted by SalemIII
4 Comments
Money is a medium of exchange.
If you had experience working on a farm, you could trade an hour of work at a farm for a bottle of milk. If you wanted a new pair of pants, though, you’d have to trade that hour of work with a tailor and you probably don’t have the skills needed.
So you could take that bottle of milk and offer that, but if the tailor doesn’t want milk you’ll have to find someone who wants milk and also has something else the tailor wants. This search is called the “double coincidence of wants.”
Money acts like a “grease” in the system, and makes this much more smooth. Instead of going on a long search for the perfect person, you simply trade your hour of work for something that everybody wants. Money represents value, regardless of if the physical cash/coins have any melt/scrap value. Because everyone values this money, you get money for work and clothes for money. It saves a lot of time and energy in searching, and makes things better for everyone.
Personally, I think the saying is a bit more intuitive when you replace the second “value” with “medium”/”method” instead.
TL;DR: Money isn’t the value **for** which they are exchanged because what you are giving and what you are receiving are the actual value (your work, the tailors clothes). Money is the value **by** which they are exchanged because it is the method used to make the exchange. (If you call your friend because you enjoy their company, the phone call is the medium, but the actual value is in your friend.)
Money on its own has no inherent value, it’s simply a piece of paper, but that paper represents something that is of value, like for instance when you are paid at a job it represents those hours you worked.
So in a sense if you earn money through labor in the form of a job you’re more so trading your labor for a good.
So in this scenario money isnt the value for which goods are exchanged as you’re really exchanging labor for a good, but *it is* how you exchange that labor for a good.
Money in and of itself has little to no value. Money represents a way of exchanging value. 1 hour of work is worth 3 Starbucks coffees. Now how do I exchange the value of that work for the value of those coffees? We use and agreed upon method of value coupons aka currency aka money
Money is just the way we do the accounting for our claims on real resources (or goods and services). It is not money itself that is valuable but that it represents the inputs, and final goods and services which we can utilize.