Imagine living in a tiny village in its primitive form – before anyone invented central banks, insured loan bonds, or Apple Pay. Perhaps you have a small field where you grow carrots, which you sell to your neighbor in exchange for two coins. You then take one of the coins and give it to another neighbor in exchange for a haircut. In this scenario, the coins – the "money" – simultaneously have three useful functions: 1. They are generally accepted as a form of payment – known in economic terms as a medium of exchange. Because the carrot buyer, the barber, and you agree to accept coins as payment, it is easier to conduct transactions among yourselves. If you didn’t have coins (or some other object functioning as money) to "intervene" in every transaction you wanted to make, you would have to resort to bartering: you would only manage to get a haircut if you found someone who knew how to handle scissors and was willing to eat carrot soup for lunch.

2. It is a way to know how much something is worth – typically called a unit of account. By stating the "price" of each thing in relation to the coins, you can easily compare every product and service with each other. Without this, you would need a separate exchange rate for every possible combination: "carrots for haircuts," "haircuts for chickens," and so on. 3. It is a means of storing value – which, unlike most economic terms, means exactly what it says. The carrots earned you two coins, but you only spent one. By holding onto the other coin instead of spending it, you take part of the reward for the value you created by growing the carrots and keep it so you can enjoy it (by exchanging it for something you want) in the future.