How is Money Defined?

Be sure to catch Krugman’s post, What is Money? We have issues with his extreme partisanship, but the economics of the piece is excellent.  He raises some very good points on how difficult it is even just to define money, much less measure it.  Krugman writes,






The classical definition of money — medium of exchange, unit of account, and store of value — is becoming increasingly blurred.

The Fed actually considered including equity mutual funds in the money supply figures at one time.  As the international reserve currency, the dollar is losing its role as a store of value to gold and other commodities.  OPEC, the Chinese, Russians, and others constantly threaten to ditch the dollar as a medium of exchange and unit of account in their international transactions.    Finally,  of the $900 BN of currency circulation, 50-70 percent is held outside the U.S.

This is one of our favorite topics and we will have more in future posts.

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4 Responses to How is Money Defined?

  1. Pingback: Monetarism Redefined: Crude, Fine Wine & Gold | The Big Picture

  2. Pingback: Is Gold Money? | The Big Picture

  3. Pingback: Is Gold Money? | The Garden of Princess Aileen 心灵的驿站

  4. Ellie K says:

    Money is currency. It is anything that functions as form of exchange, preferably a legal form of exchange. As in “legal tender”. Another criteria is this: When there is a flight to quality, what is “quality”? Sometimes it is gold. Deutschemarks and British Pound Sterling were good choices prior to the EU days and EU crisis now, respectively. For a very long time, flight to quality is the U.S. DOLLAR, or to instruments denominated in US Dollars.

    If I had to leave my mother on her own, to guard the fort, so to speak, and things were bad, I’d make sure she had some gold (5-10%) and the remainder in U.S. Dollars. That’s how I decide what is money.

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