I was pleased recently to discover another handful of short films about financial topics from the 1940s and 1950s. I’ll share them over the next few months, starting with this timely piece from 1947. With the recent economic turmoil in the U.S., it’s worthwhile to answer the question: What is money?

This ten-minute film takes its structure by following a single $5 bill as it circulates from person to person, being used in a variety of ways: to buy goods, to pay for services, to save in the bank. These transactions allow for a discussion of the history and nature of money.

Before the advent of money, people bartered. People still barter to a degree. The film provides a simple example:

Not long ago, Tom Havens got a spotlight for his bike by trading a catcher’s mitt for it. Swapping like this works well between friends. But what would you trade in a hardware store for a gallon of paint? And how would the store owner get the paint and the other goods he sells?

Modern economies are too complex and our jobs are too specialized for barter to be effective. Instead, we rely on money as a quick and easy medium of exchange. To be useful, the film says:

  • Money should be something of value.
  • Money should be easy to carry.
  • Money should be divisible.
  • Money should be durable.

Gold and silver emerged as early money because they met these four requirements. As money evolved, however, and as economies became more complex, this commodity money was replaced by representative money, paper notes and metal coins backed by reserves of valuable metals. (This is the gold standard that was once the basis of world currency.)

Today, however, people all over the world use fiat currency, money that obtains value by government mandate. This film was made in 1947, during the slow transition from the gold standard to modern fiat currency:

The values of the money we use every day are the values fixed by the government. The paper bills, and even the coins, are not in themselves actually worth the amounts they represent. Their face values, however, are guaranteed, not only by huge reserves of gold and silver, but by the stability of the government, which fixed those values. As long as people remain confident that our government is strong and secure, they will continue freely to accept and spend its money without questioning the value.

Money is not only a medium of exchange, but also a standard of value. Because $5, say, is a known entity, we’re able to estimate the value of other things, like a bowl of berries, or an afternoon at the movies, or a book.

Money also serves as “a standard for future payments — a yardstick by which we measure the value of anything bought or sold to be paid for in the future.” It’s also a storehouse of value. That $25,000 in your savings account represents accumulated wealth.

For more on this subject, read this brief history of money.

This article is about Basics, Economics, Funny Money