The proper functioning of a present-day economic system is dependent upon money and prices. This is particularly the case when a large part of the economy is based on private enterprise.

For many years economic text-books have stated the three functions of money to be (1) a means of payment, (2) a store of value and (3) a unit of account. The third function will not be considered in this paper, although a study of the controversy that has occurred recently about the correct principles of accountancy at times when prices change substantially will convince the reader that this function is important.

Whilst all three functions of money have been recognized for many years, the emphasis given to each has changed radically from time to time. Prior to 1930 almost all the emphasis was given to money as a means of payment. This led to an approach to the subject which has been called the transactions-velocity approach.