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Have you ever tried to pay for your lunch with a pencil or pay for a CD with a pet hamster? Do you think these items would be accepted as forms of money? Probably not. But have you ever thought about why you are able to use dollar bills and coins for items you buy, and not something else, like a pencil or hamster?
In order to be used as an accepted form of money, an item must first be a good medium of exchange and accepted by both the buyer and the seller. If the cafeteria will not accept your pencil as payment for a cheeseburger, it isn't a good medium of exchange.
Money also has to store its value and be able to be used in the future. If your pencil broke or your hamster grew old, they would lose their value and you wouldn't be able to buy anything with them.
Finally, money should allow the seller to easily quote a price for an item. If you are told that a cheeseburger costs $3 and a drink costs $1, that would make sense to you. But how many pencils do you think a cheeseburger is worth?
The value of money is determined by what you can get in return. The more you can get with your money, the more valuable it is. But the value of money can change over time. In 1913, ten dollars bought you considerably more products than ten dollars does today. One reason for this is inflation. Inflation is an increase in the overall price of goods and services. If things cost more, then the money is not as valuable—you will need more of it to buy the same items.
If you asked your parents if things you buy now are more or less expensive than when your parents were your age, what do you think they'd say? Older family members would say things are a lot more expensive today! That shows you how money has changed.
Consider a Three Musketeers candy bar. In 1937, Frank C. Mars introduced the candy bar with a price of five cents. Today, that same candy bar is 60 cents. That might seem like a pretty big increase, but consider that when the minimum wage was introduced in 1938, people were earning 35 cents per hour. Today, that number has increased to over 5 dollars per hour.
So the next time you long for those good old days when a movie ticket cost 25 cents, remember, that could have also been your hourly wage!
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