How do YOU define Money?
Kevin’s Fundamental Definition of Money:
Money is anything that has some sort of stored trade value for buyers, sellers and holders, is of limited quantity and most importantly, something that is sought after by many.
Hello everyone,
The other day I was going through one of my random thought experiments, and I asked myself, if I had grandchildren, who were to ask me…
“Grand dad, what is money?”
- the pesky future grandkids
What would I say?
Well, the first thing I would do, is whip out my good ol’ Mankiw Bible and reply with the the obvious functions on how money works in the Economy.
Money acts as a …
Medium of Exchange : an item that buyers give to sellers when they want to purchase goods and services.
Unit of account: The yardstick people use to post prices and record debts.
Store of Value: An item that people can use to transfer purchasing power from the present to the future.
Provision of Liquidity: Provides an ease in which an asset can be converted into a medium of exchange.
But then again, I realize two things from a canonical answer such as this.
- It is hard to explain the abstraction of money to most adults … yet alone children.
- This explains what are the functions of money, but not necessarily what money is.
So to keep things short and easy, I decided to task myself in how I would explain money to young people and regular folks, in a concise easy way.
After some time pondering, I felt that I had crafted a decent explanation of money as starter definition that regular people can latch on to.
Money is anything that has some sort of stored trade value for buyers, sellers and holders, is of limited quantity and most importantly, something that is sought after by many.
lets break this down. To me, Money can literally be anything. Money can be, paper with numbers on it, money can be gold, money can be fish, oil, cats, paper clips, beans. Hell, money can even be fridge magnets! (…had writers block and frantically looked around my condo for that one). Nower days, money is not even be tangible, think of cryptocurrencies such as bitcoin, or how modern banking works. They are just entries in a computer system.
The Money Model
Let’s go through a naive example. Let’s use Air! 🌬. Air is definitely of value, maybe we can even put it in a bottle, compress it and trade it!. It is definitely sought after by many, because many people need it to live. However, in 99% of the habitual world, Air is everywhere, so it is a resource of minimal economic value, and therefore cannot be used for economic purposes.
However, let’s say fresh air becomes scarce, and the world beings to store fresh air in containers. If it is scarce, is sought after by many, and people use these containers to trade other resources and/or services with each other, then by definition, it becomes money.
Realistically, anything can be Money if many people are willing to trade it for other resources because they know it is limited and has value to other people.
Anyways, hope you guys enjoyed my basic definition of money. I know I didn’t go over the definition of commodity money, fiat money, modern money mechanics, fractional reserved banking as well as the real functions of money in an advanced society. However, this is MY philosophy of money, and I believe that if people where to be thrown onto another planet, and money did not exist, then they will create money using my definition above with the resources they have.
If you agree or disagree, please leave your comments below, I would love to know and even challenge you to openly tell me YOUR definition of money.
Thanks for reading!
