First of all, what is money? Money is a controversial subject, difficult to understand unless you have complete knowledge of it. Its value depends on social structure, and how the different parts of it interact. It's so powerful that it may wreak major social and emotional destruction. Most students, even those in high school, hardly have basic knowledge of it.

Money acts as a storehouse of value, credit and purchasing power. It makes transactions much easier to conduct. Money is used in bartering. Barter requires a "coincidence of wants," meaning that someone must want or need whatever someone is buying. This can be time-consuming. Without money, people must be self-sufficient, and many people aren't capable of making things for themselves. There must be a division of labour, which means we don't all try to produce all the things we want. Instead, we divide labour for a better living standard for all.

Money is a standard of actual value; money acts as a good measure of value, and sometimes wealth. It is a medium of exchange, and to be effective, it must be acceptable to buyers and sellers. It's portable, but has no intrinsic value; it's useless until it's disposed of. Money must be fungible, which means that one unit of money can be interchangeable for another. It's also savable. When you save, you store up purchasing power.

Checks are also considered money. When you use a check, you tell your bank to take money from your checking account and send it to another account. The volume of transactions for which checks are used is greater than the volume for which currency is used. Checks are safer, and make for better proof of payment. It's even more portable than actual money. The cost of processing is greater, however. Credit cards also act as money - temporarily. It must be compensated for at a later time, however.

The government is active in the economy because of several factors. The first is that people have difficulty moderating themselves and their spending. Wealth means having the capabilities of getting what you want and need. People are poor because of little money and no resources, or poor management. Nothing is free, but too few people realize that. Money must be managed well to be effective and functional. Too much money will cause problems, and too little makes the economy less functional. Without government intervention, the economy could get out of hand because of the faults of people.

The more money there is, the higher prices are; this is monetary inflation. The Fed fights inflation by using monetary policy tools and foreign transactions. Banks and the Fed have a lot to do with money, its management, and its creation, as you will read below. The Fed has control over monetary policy. Monetary policy prevents inflation, and keeps money and credit growing at a pace that allows the economy to expand without excessive price increases. Growth in the economy means a better standard of living and more jobs for Americans. If money and credit grow too slowly, people can't get loans, and a recession results. If it grows too fast, inflation can occur.

Price levels remain constant when money and products rise equally.

I hope this hub has been helpful in your understanding of money and credit... two things we should know about during these uncertain times!