Conceptual Framework
The ability for people to store value is fundamental for the functioning of a modern economy. Since money is accepted as a store of value, trade is much more efficient because money is accepted by nearly all people in the economy as a store of value. When an individual or business accepts money in exchange for a good or service, the seller can store the money, such as in a bank account, and retrieve it later to purchase a good or service in the future.
The ability of money to act as a store of value also gives people a degree of predictability because money will hold its value over time. This predictability means you don't run the risk of losing your wealth by failing to immediately spend it. For example, if you exchange a paperback book for a pie, the pie has value but only so long as it can be consumed. If it spoils, it has lost its value. Money, on the other hand, doesn't spoil.
Money isn't without some problems. Sometimes the value of money can become unpredictable, such as during hyperinflation, when the prices rise so fast that money becomes practically worthless. In times of hyperinflation, people often will turn to bartering for goods or services or to other assets that act as a store of value, such as gold or silver.
Lesson Summary
Let's review. Money is a type of asset in a modern economy that can be used to purchase goods and services. One of the most important features of money is that it acts as a store of value, which means that you can not only use it to trade but also store it for future use. While the value of money is usually predictable, during times of hyperinflation it may become worthless, and people will replace it with barter or other assets that serve as a store of value, such as precious metals.
