Money Demystified: Understanding Why, How, and What It Is

Money is the fundamental good in the economy. Despite this and the extensive literature on money, the concept remains shrouded in incomprehension, even within the economics field, with the central question of what money is still being debated. This article discusses the institution of money, demystifying its nature and vital functions by explaining what money is, how it is produced, and, more importantly, why it is essential to economic prosperity and civilization. Money has taken many forms throughout history, with commodity money such as silver and gold being the primary forms. Money is crucial in enabling modern societies to function and thrive as the tool that facilitates the exchange, account, transfer, and store of economic value (goods and services). This makes money the cornerstone of indirect exchange societies and the fundamental good in the economy. This article is structured in three parts. The first describes the nature and functions of money (what it is); the second examines the roles money plays in coordinating economic activity (why it is); and the third discusses money production (how it is).