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The best way of answering the
question Why do we use money?
Is to imagine ourselves living thousands of years ago
before money was invented.
Because there is no money, we cannot buy any of the
things we need. We can perhaps grow enough food to eat, build some kind
of shelter, and make rough clothes and
shoes for ourselves.
However, we will also need other things. Most of us will not be able to
make knives or cooking pots. We will have to
obtain these from somebody else who can make them, and we will
have to give something in exchange.
We may offer, say, a pair of shoes
that we have made in exchange for a knife, but
we then have to find somebody who has made a knife and who
wants a pair of shoes.
Life under these conditions is very difficult and primitive.
Since the invention of money,
life has been very much easier.
If we need a knife we can obtain one by paying money for
it.
The person who a made the knife accepts
our money in exchange because he can
use it to buy the things he
needs himself. This is what we mean when we say that money
is our ‘medium of exchange’. People obtain the money
they need
in various ways, for example by doing work in return for payment in
money or by making goods and selling them for money.
Money is our ‘medium of exchange’. In return for payment
in money, a shopkeeper gives us the we need.
He accepts our money because he can use it to buy things for
himself.
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