Money is critical for free market functionality, acting as a medium of exchange and enabling economic calculation. The price of money is complex to determine, lacking a unit of account since prices are expressed in money itself. Individuals buy and sell money based on expectations of future purchasing power. The law of diminishing marginal utility applies to money; as people possess more, the urgency for satisfaction decreases. Ultimately, the cost of money is the highest utility a person derives from the amount they forfeit, emphasizing its value in exchanges.
Money constitutes half of every transaction, representing one side of all value expressed in the exchange of goods and services. The commodity with the highest marketability tends to become a society's preferred medium of exchange - that is, its money. Prices denominated in this common medium enable economic calculation, which in turn allows entrepreneurs to spot opportunities, make profits and push civilization forward.
Determining the price of money is tricky because we have no unit of account to measure it, as we express prices in money. People buy and sell money based on what they expect that money will buy them in the future.
The law of diminishing marginal utility applies to money as it does elsewhere: the more units of a good a person possesses, the less urgent the satisfaction each additional unit provides. Money's value lies in the additional satisfaction it can provide.
The cost of money in an exchange is the highest utility a person could have derived from the amount of cash they gave up. If a person chooses to work for an hour to afford a rib-eye, they value that purchasing power more than the immediate use of their time.
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