The Value of Money

Individuals place value on money because of the value they place on the things for which they can trade it. Green pieces of paper, which have little or no value to an individual as a producer good or consumer good, become more valuable in indirect exchange.

Personal Preference Table
Direct Exchange		Indirect Exchange
Music CD		Music CD
Hamburger		5 Green Papers
Beer		Hamburger
Bike Tube		Beer
Novel		Bike Tube
5 Green Papers		Novel
In a market using direct exchange this person (maybe you) has the sequence of preferences in the column above. 5 Green Papers (a clever disguise for money) have little value to you, and you would not exchange them for any of the items above them.		In a market using indirect exchange you discover that Charlie will accept 5 Green Papers for the Music CD you crave so much. As a medium of indirect exchange, which you can trade for the Music CD, those 5 Green Papers suddenly have more value to you.

To complete the definition and description of money
we'll look at some of the Money Aggregates.