by Michael Greaney

Created on: January 28, 2008

One thing people discover about money is that it is hard to define. Many economists declare that money is simply the medium of exchange. Others add, "a store of value," and others, "a way of measuring value." Adding to the confusion, in many countries, such as the United States, there is no standard legal definition of money. As one legal dictionary points out, "'Money' has no technical meaning, but is of ambiguous import, and may be interpreted having regard to all surrounding circumstances under which it is used." ("Money," Black's Law Dictionary. St. Paul, MN: West Publishing Co., 1951.) The courts decide on a case-by-case basis what constitutes "money."

One way to understand money is to see what it is not. First, we need to realize that money is not wealth. Money represents wealth. As a medium of exchange, money enables people to transfer claims on the wealth it represents. Not being tied to a specific item of wealth, money is a generalized claim - i.e., it is fungible (it doesn't matter which dollar bill you use to pay a debt, just that you pay the debt). It is thus a store of value: you can hold money until you choose to exchange it for actual wealth.

Currency and money, although related, are not the same thing. Currency is the specific form that money can take, i.e., currency is the "vehicle" for money. It is only one aspect of money. Strangely enough, if currency were the same thing as money, counterfeiting could not be wrong. Why? Because money represents a promise to deliver a pre-determined amount of wealth to the bearer on demand. Counterfeit money is issued without either the ability or the intent to make good on that promise.

If currency were money, then the promise to deliver value would be unnecessary. When "successful" (i.e., it passes), counterfeit money represents the triumph of form over substance. Currency is form, the promise to deliver something of value is substance. ("Legal tender," currency that is authorized by the government, is simply a declaration that it must be accepted in payment of a legal debt when proffered in the correct amount.)

Because of the "promise" aspect of money, a link to actual wealth is essential. Traditionally, the wealth represented has been precious metal. In this instance the wealth for which the money stood was carried along with the money as the form of the currency. The only thing the public had to worry about was if the issuer could be trusted to put the full value of metal into the coin. This could be determined

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