Encyclopedia · Foundations
Money
Money is whatever a community reliably accepts in exchange for goods, uses to price things, and trusts to hold value between the day you earn it and the day you spend it.
Also called: currency, medium of exchange.
Working knowledge
Economists describe three jobs: a medium of exchange, a unit of account, and a store of value. Most monetary arguments are about the third job failing while the first two carry on working.
Money is not the same thing as wealth. Money is the claim; wealth is the productive property, skill and capital the claim can be exchanged for.
Advanced
Commodity money is a good that also circulates. Representative money is a claim redeemable in that good. Fiat money is a claim redeemable in nothing but itself, accepted because law and habit make it so.
The American dollar has been all three: a defined weight of silver in 1792, a redeemable claim under the gold standard, and since 1971 a unit with no defined metal content.
Professional practice
Modern money is mostly bank deposits — a liability of a commercial bank — rather than central-bank money. This is why deposit insurance, bank solvency and settlement systems are monetary questions, not merely banking questions.
Aggregates such as M2 measure quantity, not velocity or willingness to hold. A change in the quantity of money does not mechanically deliver a proportional change in prices, which is why the 2008–2019 and 2020–2022 episodes look so different.
Historical context
1792: the dollar defined by weight. 1862: paper made legal tender without redemption. 1913: an elastic currency by statute. 1933: private gold called in. 1971: the last metal link cut.
Where people go wrong
- Confusing the number in an account with the value it commands.
- Assuming a unit that has been stable in your lifetime is stable by nature.
Where informed people disagree
Sound-money view
Held by Classical and Austrian-influenced economists
A monetary unit not anchored to anything will be expanded whenever expansion is politically easier than restraint, so the long-run direction of purchasing power is down.
Managed-money view
Held by Mainstream central banking
A flexible unit lets policy offset shocks that a fixed anchor would transmit into unemployment, and price stability can be maintained by mandate and credibility.
Scripture treats honest weights and measures as a moral matter, not a technical one. Understanding what your money is, is part of managing what you have been given.
Sources for this entry
- Library of Congress — United States Statutes at Large, Volume 1 (1789–1799)The enacted text of early federal law, including the Coinage Act of April 2, 1792, which defined the dollar as a stated weight of silver and set gold and silver coin standards.
- FRED, Federal Reserve Bank of St. Louis — M2 Money StockThe reported level and history of the M2 money stock. It shows the quantity of money; it does not by itself establish a cause of any price change.
- U.S. Bureau of Labor Statistics — CPI Inflation CalculatorOfficial Consumer Price Index comparisons between two dates, used for purchasing-power statements. It measures a basket average, not any one household's costs.
- Federal Reserve History, Federal Reserve System — Gold Convertibility Ends (August 15, 1971)The Federal Reserve's own account of President Nixon's August 15, 1971 suspension of dollar convertibility into gold for foreign governments, and what followed.
Related claims we have checked
Last reviewed 2026-09-14
Rather ask a person?
A specialist will answer a specific question without a pitch. No account needed, no obligation. Monday – Friday, 7am – 4pm Pacific.