What is Money?

In economics, a commodity is a marketable item produced to satisfy wants or needs.[1] Economic commodities comprise goods and services.[2]   http://en.wikipedia.org/wiki/Commodity

To start and inquiry into “What is Money?” we should look no further than the opening line of the lecture “Ideal Money” by Dr. John Nash:

The special commodity or medium we call money has a long and interesting history.

Money is indeed a commodity, but also a special commodity at that. And as Nash alludes to, we must understand and observe the entire known history of money in order to truly understand what money is.  Today we as a society seem to have developed a cognitive bias towards money that we each share to varying degrees.  The very mention of money in regards to the inquiry as to what it is, sends many people fleeing in various ways can find. Truly money is not well understood by many.  The author touches on some of this in relation to some possible directions one could take in order to better understand money.

AN INQUIRY INTO THE NATURE AND CAUSES OF THE WEALTH OF NATIONS is probably the most defining book of economics and especially in relation to the history of money and also in relation to the societies it arose in, with its different forms. Smith gives and extensive overview of the history of money in this way, which stays true to its title as an “inquiry”.  Readers can be weary of those that try to claim certain thesis’s of Smith’s since TWON is much more of an objective overview than a specific point being made.

Beyond such an overview and more specifically wiki defines money as follows:

“Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts in a particular country or socio-economic context.[1][2][3] The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, sometimes, a standard of deferred payment.[4][5] Any item or verifiable record that fulfills these functions can be considered money.
Money is historically an emergent market phenomenon establishing a commodity money, but nearly all contemporary money systems are based on fiat money.[4] Fiat money, like any check or note of debt, is without intrinsic use value as a physical commodity. It derives its value by being declared by a government to be legal tender; that is, it must be accepted as a form of payment within the boundaries of the country, for “all debts, public and private”.[6] Such laws in practice cause fiat money to acquire the value of any of the goods and services that it may be traded for within the nation that issues it.
The money supply of a country consists of currency (banknotes and coins) and bank money (the balance held in checking accounts and savings accounts). Bank money, which consists only of records (mostly computerized in modern banking), forms by far the largest part of broad money in developed countries.[7][8][9]”

In his essay “Shelling Out” Nick Szabo extends the works of Adam Smith and especially in relation to ancient man through an interesting conjecture about the Kula Ring peoples. The Kula Ring conjecture is an important foundational understanding for the advent and ultimate academic acceptance of bitcoin, which might someday soon become to be commonly known as an evolution of money.

Ideal Money in regard to the Nashian lectures on the subject, refers to the difference between good and bad money in the Gresham‘s sense. Gresham’s law states that bad money drives out the good:

“Good” money is money that shows little difference between its nominal value (the face value of the coin) and its commodity value (the value of the metal of which it is made, often precious metals, nickel, or copper).

Fiat money is, “is currency which derives its value from government regulation or law. The term derives from the Latin fiat (“let it be done”, “it shall be”).[1] It differs from commodity money and representative money. Commodity money is based on a good, often a precious metal such as gold or silver, which has uses other than as a medium of exchange, while representative money is a claim on the commodity rather than the actual good.[2][3][4]

Fiat money today tends to be money of obviously poor quality in relation to what might be perceived as Ideal Money or Good money. Currency is also helpful to define in relation to this:
A currency (from Middle English: curraunt, “in circulation”, from Latin: currens, -entis) in the most specific use of the word refers to money in any form when in actual use or circulation as a medium of exchange, especially circulating banknotes and coins.[1][2] A more general definition is that a currency is a system of money (monetary units) in common use, especially in a nation.[3]

Nick Szabo further defines or understanding of money and its history and possible future as an extrapolation from the past:



Many polymaths right up to the ancients and most ancient written historical accounts include peoples that had significant impacts on economics, foreign commerce and trade deals, and the quality of money used in their respective regions and times. Newton, Copernicus, Nash are examples of peoples that have had great effects on the economies of their time.


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