by Keith Hamburger

Created on: April 27, 2008   Last Updated: January 06, 2009

Economists, people that specialize in the study of money and its use in society, define money as having three defining characteristics. While these characteristics aren't recognized by all people at all times, for that which is considered real money they are usually common among societies with advanced communication and trade. As an example, something that is consistently considered sound money, gold coins, would have no worth in a hunter-gatherer society. But, among people with advanced trade, such a recognition is nearly universal.

To be considered money an object has to be suitable as a "medium of exchange". A medium of exchange can be recognized among groups of people as having a value. This value is the basis for trade. While the specific value need not be static or universal, value must be recognized. An ounce of gold could be traded for ten bushels of wheat in one market or five bushels in another. But participants in both markets recognize there is a value to the gold and it is reasonable to exchange that gold for wheat.

Most trade items would not qualify as money under this definition. Shells might be of value in one place and time but would be of very little value in another. Tea leaves would be of far lower value in the society that grows the tea leaves and has a major surplus but another market a long way away might value them very highly. Barter doesn't qualify here because one has to find someone with a need for that which he wishes to trade before a trade can take place.

Being a "unit of account" is the second characteristic of money. A unit of account has three additional features. "Divisibility" is essential. To function as money an item has to have the ability to be broken down into different portions in order to facilitate larger or smaller exchanges. "Fungibility" is another feature. This means that each piece of money is recognized as being equivalent to any other equivelent piece. "Countability" is a third feature. Money has to be easily recognizable and verifiable as to its value to facilitate counting.

Coins are stamped with features that make them easily recognizable and are available in various weights. This stamping makes them easily divisible, smaller and larger denominations can be used for different exchanges. The stamping, when provided from a reputable authority, also makes the different denominations readily recognizable and countable.

Trade goods, on the other hand, do not have these features. One piece of art or an item of jewelry

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