Money is: a medium of exchange.
Is it not strange that it is so difficult to define something so often used? Something that most of us works for, for our whole lives. It is nearly as difficult as defining Love.
In this article I prefer to keep things simple. Here I define money simply as: a medium of exchange.
What I am actually doing is to define money by describing it by its essential function. Yes that is correct the essential function of money is that it must be a medium of exchange. If it is not a medium of exchange it is not money.
Money also have a few other functions. These are:
It is used as a store of value - it has an asset function.
It is acting as a unit of account and
It is acting as a standard of deferred payment.
One of the characteristics of Money is that Bad money drives out Good money. What do I mean by that?
Simply that historically society used very valuable items as money but as times goes on the intrinsic value of the item used as money is getting lower and lower.
First we used golden coins. Do we see them around today? No only as collectors pieces. Then we started to make coins of Silver then of Bronze and then of some metal that is virtually worthless. Today the totally worthless paper is valuable money.
First the money was 100% covered by the similar value of gold because money was gold. Then it became covered by gold the banks kept a similar amount of gold in reserve. Then the world stepped off the gold standard and to day very little gold is kept in reserve to cover the value of the money in circulation.
But to my mind all money is not even kept in the form of gold or coins or notes. Nowadays money is kept in the form of bits and bytes. Yes it is kept in the form of mere electronic impulses!
Today I am totally happy if a person in Australia sends me an electronic money transfer to my bank in the United States. I can use that money with no problem. As a matter of fact it is easier, safer and cheaper to transfer money electronically than what it is to send cash!
This is why it is so frustrating when the banks still work as if they are handling gold.
I wish they will wake up and smell the roses. Why on earth must it be so difficult for us to send money from one place to another? Why must it be so expensive? Why can I not simply take the electronic money in my bank and place it in an electronic bank in another country?
Certainly it will cost something because there has to be security measures that I can not transfer something that I do not have etc. But certainly something can be done to make this a whole lot easier and cheaper than the archaic banking systems we have today.
Dr Loot Gous
Author = W. T. Newlyn, Title = "Theory of Money" Year = 1970, Publisher = Oxford University Press, Location = London, Page = 1, Chapter = I Definitions and Classifications.