The six characteristics of money

Money has taken many forms through the ages: shells, wheels, beads, and even cows. Today, countries around the world use bills and coins for cash. Why have earlier forms been replaced? What makes bills and coins a good form of money? To figure this out, let’s compare some of the characteristics of two forms of money — a cow, and a pile of bills and coins.

First, which one will last? On a long trip to the market, a cow might get sick or even die. This makes them unreliable as money. But bills and coins last a long time. If they do wear out, they can be replaced easily.

Bills and coins are durable. This is the first characteristic of modern money: durability. Second, which is easier to bring with you to a store? You could probably, with a bit of trouble, lead one cow to a store. But what if you needed to pay with ten cows, or a hundred cows?

Coins and bills, meanwhile, can go in your pocket, no problem! Bills and coins are more portable. Portability is the second characteristic of today’s money. Now let’s say one cow will buy you 50 eggs. Perhaps you don’t want fifty eggs, though, you just want 10.

It’s rather difficult to split your living cow into pieces for smaller purchases. It’s easy, however, to pull out just the right amount of money from your bills and coins. And if you only have a 50-dollar bill? You can easily exchange that for five tens or even break it down further into amounts less than a dollar. Bills and coins are easily divided; cows are not.

Divisibility is the third characteristic of modern money. Another problem posed by cows, when it comes to money, is that they are not all the same shape and size. If my cow is bigger than yours, is it worth more? How much more? Bills and coins of the same value, on the other hand, are all the same size and shape.

We say they are uniform. Uniformity is the fourth characteristic of our money. Another important thing to consider about money is its supply. When cows are used as money, people will do their best to breed more and more, so they have more to spend. But eventually, an increase in the number of cows going around makes each cow less valuable.

Because of this, cows aren’t a very stable form of money. In contrast, the number of bills and coins in circulation is controlled in each country. Each country’s central bank decides how much money is printed, so that money doesn’t suddenly become more or less valuable. A key characteristic of money, then, is that it should be in limited supply. There is one more characteristic of money to consider.

If you try to pay at a store with a cow, the cashier will likely turn you away. “We… don’t… take cows…?” Coins and bills, on the other hand, are accepted as payment almost anywhere. Acceptability is the final characteristic that makes money… money! When we consider the characteristics of money — durability, portability, divisibility, uniformity, limited supply, and acceptability — it’s pretty clear that bills and coins are a much better form of money than cattle. Think about some of the other forms of money used throughout history. How do their characteristics stack up?