Wednesday, April 20, 2011

What's Money?

There are few subjects money has not part of.  From the personal to the geopolitical, it's often related to whatever topic,  but a good definition is less obvious than one might initially think.

The Onion memorably had a pretty interesting definition-. "A symbolic mutually shared illusion" which they further describe as "a meaningless and intangible social construct" here:
http://www.theonion.com/articles/us-economy-grinds-to-halt-as-nation-realizes-money,2912/

Maybe that turns out to be the case.  If not, maybe the question of what the definition of money is could be rephrased slightly, to be "What's it supposed to be?  What would we want the definition of money to be?"

The best I've found, which jibes pretty closely with what I've had in mind is here:
best found online - http://en.wikipedia.org/wiki/Money

It's a three part definition (Wikipedia has a fourth part I'm trying to understand better, it seems like debt)

It should be a medium of exchange, a measure of value and a store of value.
- A medium of exchange - So someone with a spare cows who needs a rug doesn't need to find someone else with an extra rug looking for a cow, or to set up a daisy chain of exchanges to get to him.  To serve this purpose it should be widely accepted and practical, available in useable increments and forms.  What might only be a medium of exchange?  Ski ball tickets. (still exist?)  Not a good store of value and a worse measure, they are practical and accepted in exchange for overpriced junk.
- Measure of value - To compare apples and oranges on equal terms, serving as a common denominator for anything one might spend for.  What might serve this purpose and not the other two?  A bond rating, which (at least theoretically) puts at least somewhat unlike, opaque things on a clear scale and provides a shorthand basis for comparison.
- Store of value - So users can preserve your buying power, time purchases as needed at make long term plans regarding investments and spending, the later function making this arguably the most important function money can serve.  What's only a store?  Diamonds are one of the most concentrated and historically consistent stores of value, but they are not fungible, and their uniqueness also makes them a poor medium exchange.

A modern, complex society without money meeting the above criteria cannot function, or at least has not yet done so.  Those whose money has ceased to perform these functions have fallen into various degrees of collapse.  Historically, it has been the third part of the definition which has been undermined political forces which perceive advantage in doing so.  Off the top of my head, this has happened in modern history to Germany, Hungary, Brazil, Argentina, Serbia and Zimbabwe.  In each instance, dramatic debasement has precipitated or exacerbated societal collapse.  Any institution responsible for a county's money whose product fails to meet at least this definition over time isn't doing its job.

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