Definition of Money and Its Uses

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An Analysis of Money and How it Works For a definition of money and where it comes from, one could turn to the United States Constitution, Article 1, Section 8, which states that "the Congress shall have the Power to coin Money, regulate the Value thereof, and fix the standards of weights and measures." But if such a definition fails to get to the heart of what money is, one could turn to Adam Smith, author of Wealth of Nations, who wrote that "money has become in all civilized nations the universal instrument of commerce, by the intervention of which goods of all kinds are bought and sold, or exchanged for one another" (44). In other words, in Adam Smith's time, money represented the value of labor or commodity. Today, a definition of money is not so simple. The creation of money "out of thin air" (Paul End the Fed 150), or fiat currency, and the monetization of debt, have all changed the way we think of money. Today, paper money is no longer tied to the precious metals it once represented. Inflationary practices have resulted in a steady decline in the value of paper money around the world. This essay will analyze the nature of money and how it works. In a large market economy where the division of labor has been established, men must live by exchanging produce. To illustrate how money works, Adam Smith gives the example of two barterers, one of whom has something the other would like, but the other of whom has nothing of value to give in exchange. Money becomes the

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