Is there any agreement on what money is?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.

Which of these are actually money?

a) My personal check, drawn on sufficient funds.
95
22%
b) A $10 bill, Federal Reserve note, that says "legal tender" on it
123
28%
c) A one-Troy-ounce spool of sterling silver wire
35
8%
d) The one-ton gold "coin" marked AUS $1 million that was recently produced by the Perth Mint
53
12%
e) Deposits in money market mutual funds
89
21%
f) Cigarettes
37
9%
 
Total votes: 432

User avatar
Topic Author
nisiprius
Advisory Board
Posts: 39476
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Is there any agreement on what money is?

Post by nisiprius » Sun Nov 13, 2011 9:19 pm

This is an experiment to see whether or not there's much agreement on the definition of what constitutes "money."

Please be sure to vote for EVERY options you agree is "money." You can vote for any number of options, including all six.

Here's an article about the Perth Mint's "coin."
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

555
Posts: 4955
Joined: Thu Dec 24, 2009 7:21 am

Re: Is there any agreement on what money is?

Post by 555 » Sun Nov 13, 2011 9:30 pm

Why do the percentages add up tp 100%?

User avatar
magician
Posts: 1571
Joined: Mon May 02, 2011 1:08 am
Location: Yorba Linda, CA
Contact:

Re: Is there any agreement on what money is?

Post by magician » Sun Nov 13, 2011 9:32 pm

555 wrote:Why do the percentages add up tp 100%?
What would you prefer they total?
Simplify the complicated side; don't complify the simplicated side.

Jfet
Posts: 1081
Joined: Tue Dec 21, 2010 7:20 pm

Re: Is there any agreement on what money is?

Post by Jfet » Sun Nov 13, 2011 9:33 pm

I would have liked to have seen a few more, like:

1) A $1000 unrealized gain in your taxable account

That one is kind of like Schrödinger's cat. With the click of a button it is converted into funds swept into a money market (which a lot of people voted was money), but I bet in the poll most would not call it money at all in the unrealized form.

User avatar
magician
Posts: 1571
Joined: Mon May 02, 2011 1:08 am
Location: Yorba Linda, CA
Contact:

Re: Is there any agreement on what money is?

Post by magician » Sun Nov 13, 2011 9:41 pm

Why can't one vote for none of the above?

Seems like a glaring omission. Propagandist, in fact.
Simplify the complicated side; don't complify the simplicated side.

Chipmaster
Posts: 24
Joined: Sun Jan 30, 2011 5:10 pm

Re: Is there any agreement on what money is?

Post by Chipmaster » Sun Nov 13, 2011 9:47 pm

It might be interesting to add:

Bank Check
Money Order

In particular, because I believe I've read that in the past Bank Checks have become a concern by central governments as they represented an alternative to currency.

For my part, I don't think there are hard and fast lines on what constitute money. Clearly as you extend duration on treasury instruments you gradually work your way from money to bond.

Additionally, if you define money in terms of being a medium of exchange in all circumstances, even cash may not qualify (although my interpretation of "All Debts Public and Private" would disagree). As an example, on my recent Southwest Airlines flights, I was not allowed to pay cash for drinks and instead only credit/debit cards were accepted - whether this is legal or not, there are several instances of this going on. So if you define money this way, then nothing is money, which is a little ridiculous.

So how can you define money? Well, it's clearly a little grey. I can't think of any definitions which will be true in all circumstances. I would say the more often it is exchanged and the more varied goods an item is traded for, the more money-like it becomes.

Jfet
Posts: 1081
Joined: Tue Dec 21, 2010 7:20 pm

Re: Is there any agreement on what money is?

Post by Jfet » Sun Nov 13, 2011 9:56 pm

I would define money as anything that can be used to purchase goods or services from pretty much any person or entity OR can be readily converted into a form that can be used to purchase goods or services.

Thus things like cigarettes, artwork, etc. would not be eligible because they could take weeks to convert at an acceptable price.

Precious metals, stocks, bonds, money market balances are all money because they can be converted instantly into money at a non-negotiable rate (pretty much the same rate for all sellers at that instant in time)

Chipmaster
Posts: 24
Joined: Sun Jan 30, 2011 5:10 pm

Re: Is there any agreement on what money is?

Post by Chipmaster » Sun Nov 13, 2011 10:07 pm

Jfet wrote:Precious metals, stocks, bonds, money market balances are all money because they can be converted instantly into money at a non-negotiable rate (pretty much the same rate for all sellers at that instant in time)
While I agree that liquidity is a prerequisite for being money, I'm not sure I agree that the converse is true - that liquidity is all that's necessary to be money. While you can instantly convert those assets into money, you still can't exchange the assets themselves - they still need to be converted into a medium of exchange (aka money).

User avatar
baw703916
Posts: 6681
Joined: Sun Apr 01, 2007 1:10 pm
Location: Seattle

Re: Is there any agreement on what money is?

Post by baw703916 » Sun Nov 13, 2011 10:07 pm

I would also categorize credit cards as money (if one has sufficient funds to completely pay them off in the next billing cycle).
Most of my posts assume no behavioral errors.

User avatar
Topic Author
nisiprius
Advisory Board
Posts: 39476
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Is there any agreement on what money is?

Post by nisiprius » Sun Nov 13, 2011 10:08 pm

magician wrote:Why can't one vote for none of the above?

Seems like a glaring omission. Propagandist, in fact.
It was an oversight, not meant to be propagandist. I hadn't thought through how the new polls work. I figured you could vote "none of the above" by not checking any boxes... but forgot that there sees to be no total of the number of people voting. I vaguely thought the "total" would be the "total number of voters," rather than the "total number of votes."

Rather than "none of the above," I ought to have included a box that said "Total Voters: Everyone please check this box so that we will get the total number of people voting."
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

S&L1940
Posts: 1658
Joined: Fri Nov 02, 2007 11:19 pm
Location: South Florida

Re: Is there any agreement on what money is?

Post by S&L1940 » Sun Nov 13, 2011 10:16 pm

baw703916 wrote:I would also categorize credit cards as money (if one has sufficient funds to completely pay them off in the next billing cycle).
plastic, I agree. most times I do not carry any cash, check or gold nuggets.
Don't it always seem to go * That you don't know what you've got * Till it's gone

User avatar
GregLee
Posts: 1748
Joined: Wed Oct 27, 2010 3:54 pm
Location: Waimanalo, HI

Re: Is there any agreement on what money is?

Post by GregLee » Sun Nov 13, 2011 10:27 pm

baw703916 wrote:I would also categorize credit cards as money (if one has sufficient funds to completely pay them off in the next billing cycle).
Yes, and I'd go further to give credit cards preference over the currently most popular choices. After I voted (for a and b), I looked up a definition:
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context.[1][2][3]
http://en.wikipedia.org/wiki/Money
and noted the problems with choices a and b. Neither need be "accepted as payment for goods and services", though the real green stuff, b, must be accepted for "repayment of debts".
Greg, retired 8/10.

User avatar
CaliJim
Posts: 3050
Joined: Sun Feb 28, 2010 8:47 pm
Location: California, near the beach

Re: Is there any agreement on what money is?

Post by CaliJim » Sun Nov 13, 2011 10:44 pm

credit cards, money orders and checks are not money. they are instructions and authorizations to transfer money.

money these days, more and more, is stored as magnetic patterns located on hard disks, and digitally encoded electro-magnetic waves.... in other words - computer information bits.
Last edited by CaliJim on Sun Nov 13, 2011 11:18 pm, edited 1 time in total.

tpm871
Posts: 149
Joined: Sun Sep 12, 2010 10:58 am

Re: Is there any agreement on what money is?

Post by tpm871 » Sun Nov 13, 2011 11:02 pm

"Bitcoins" would have been an interesting option.

http://en.wikipedia.org/wiki/Bitcoin

User avatar
Opponent Process
Posts: 5157
Joined: Tue Sep 18, 2007 9:19 pm

Re: Is there any agreement on what money is?

Post by Opponent Process » Sun Nov 13, 2011 11:16 pm

when I was a kid there was an article in Beckett Baseball Card Monthly contemplating the difference between a $20 bill with Andrew Jackson's picture on it and a $20 baseball card with Bo Jackson's picture on it.
30/30/20/20 | US/International/Bonds/TIPS | Average Age=37

User avatar
CABob
Posts: 4777
Joined: Sun Feb 25, 2007 8:55 pm
Location: Southern California

Re: Is there any agreement on what money is?

Post by CABob » Sun Nov 13, 2011 11:18 pm

Very interesting poll. In the strictest sense I am inclined to think that only the Federal Reserve note and the Aussie coin are money. But all of the others (including cigarettes under some circumstances) are very close since they can be easily converted into money and are used for an indirect medium of exchange.
Bob

User avatar
mhc
Posts: 4036
Joined: Mon Apr 04, 2011 10:18 pm
Location: NoCo

Re: Is there any agreement on what money is?

Post by mhc » Sun Nov 13, 2011 11:31 pm

According to Wikipedia there are different types of money. http://en.wikipedia.org/wiki/Money#Types_of_money

The gold, silver, and cigarettes would be commodity money. I think I have purchased a beer with cigarettes before.

The $10 bill would be fiat money.

The check is commercial bank money.

I'm not sure the MM MF would be money. I don't know how one would generally directly exchange it for services or goods.

hazlitt777
Posts: 1033
Joined: Fri Aug 12, 2011 4:10 am
Location: Wisconsin

Re: Is there any agreement on what money is?

Post by hazlitt777 » Mon Nov 14, 2011 12:14 am

Chipmaster wrote:
Jfet wrote:Precious metals, stocks, bonds, money market balances are all money because they can be converted instantly into money at a non-negotiable rate (pretty much the same rate for all sellers at that instant in time)
While I agree that liquidity is a prerequisite for being money, I'm not sure I agree that the converse is true - that liquidity is all that's necessary to be money. While you can instantly convert those assets into money, you still can't exchange the assets themselves - they still need to be converted into a medium of exchange (aka money).
I'm "afraid" I might have been the one to inspire this new thread. In the thread entitled "Precious metals" we got to the topic of money. I suggested it was a legitimate topic because we invest in or hold stocks, bonds and cash/money. I suggested since it is something that we are paid in via salaries, stock dividends and interest from bonds, it would be good to discuss what it is. After all, if we are to diversify stocks, bonds and cash/money...applying boglehead philosophy to all these assets, it would be good to have some broad sense of what money is.

I noted in the previous posts that the issue of money and the various forms it has taken have unfortunately been at times, derided and made fun of in this forum. I suggested this isn't helpful since it is a topic one should give some thought to...even if one decides not to diversify ones cash or money holdings. I suggested that if people are going to diversify their money holdings, it might be good for them to be exposed to some of the main tenets of the boglehead philosophy.

With that in mind, I'm glad nisiprius started this thread.

In my opinion, those things which have a combination of rarity, liquidity, durability, can act as a medium of exchange, are a relative stable store of value, have a relative large value per unit weight or denomination, and are homogenous could be candidates for use as money. Those that combine these traits best, could arguably be the best forms of money. There could be a good number.

Some things like stocks, bonds, and mutual funds, have been called "quasi-money" because they have some of the above traits but not enough for some to call them money. So that is where I am at with the topic.

Maybe we can develop some type of consensus here that may be of help to those attempting to apply the Bogelian principle of diversification, simplicity, low cost etc. not just to stocks and bonds, but also money. I have found the topic to be beneficial on a number of levels, including financially.

User avatar
VictoriaF
Posts: 18986
Joined: Tue Feb 27, 2007 7:27 am
Location: Black Swan Lake

Re: Is there any agreement on what money is?

Post by VictoriaF » Mon Nov 14, 2011 12:29 am

mhc wrote:The gold, silver, and cigarettes would be commodity money. I think I have purchased a beer with cigarettes before.
We had peak cigarettes before we had peak oil.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

SP-diceman
Posts: 3968
Joined: Sun Oct 05, 2008 9:17 am

Re: Is there any agreement on what money is?

Post by SP-diceman » Mon Nov 14, 2011 12:48 am

I always thought, just about everything was money.
(all we would argue about is how much its worth)

(just look at all the ways criminals can make a living) :)

All your possessions can be sold.
Who you know can be “worth” something.
Physical skills, knowledge, information, looks.

…and obviously “money”, stocks, bonds, cash.


Thanks
SP-diceman

555
Posts: 4955
Joined: Thu Dec 24, 2009 7:21 am

Re: Is there any agreement on what money is?

Post by 555 » Mon Nov 14, 2011 1:04 am

magician wrote:
555 wrote:Why do the percentages add up to 100%?
What would you prefer they total?
"total number of votes" divided by "total number of voters".

User avatar
magician
Posts: 1571
Joined: Mon May 02, 2011 1:08 am
Location: Yorba Linda, CA
Contact:

Re: Is there any agreement on what money is?

Post by magician » Mon Nov 14, 2011 1:12 am

555 wrote:
magician wrote:
555 wrote:Why do the percentages add up to 100%?
What would you prefer they total?
"total number of votes" divided by "total number of voters".
I suspect that the system doesn't keep track of the total number of voters.
Simplify the complicated side; don't complify the simplicated side.

User avatar
magician
Posts: 1571
Joined: Mon May 02, 2011 1:08 am
Location: Yorba Linda, CA
Contact:

Re: Is there any agreement on what money is?

Post by magician » Mon Nov 14, 2011 1:15 am

nisiprius wrote:
magician wrote:Why can't one vote for none of the above?
Seems like a glaring omission. Propagandist, in fact.
It was an oversight, not meant to be propagandist.
I know: just yanking your chain.

Frankly, I think it's pretty cool that they have polls that allow for multiple selections; it's novel.
Simplify the complicated side; don't complify the simplicated side.

Don Robins
Posts: 664
Joined: Fri May 06, 2011 1:44 pm

Re: Is there any agreement on what money is?

Post by Don Robins » Mon Nov 14, 2011 1:49 am

Guess I really don't know what money is, but if you don't have any or don't have enough of it,
life is very difficult and painful.

jimkinny
Posts: 1299
Joined: Sun Mar 14, 2010 1:51 pm

Re: Is there any agreement on what money is?

Post by jimkinny » Mon Nov 14, 2011 6:12 am

Money is a faith based system. If you don't have faith, then there is no money. It is a means of translating labor/knowledge into something that can traded.

Jim

FafnerMorell
Posts: 686
Joined: Mon Sep 15, 2008 10:27 am

Re: Is there any agreement on what money is?

Post by FafnerMorell » Mon Nov 14, 2011 9:03 am

Just about anything & everything is money - it just depends on the culture/time-period.

I suspect at the root of this is gold. If gold isn't money, why are central banks/treasuries buying/holding it? In the past few years, we see China, India, South Korea, Thailand, Mexico, Russia and more accumulating tons of it. The US Treasury has about 8000 tons stockpiled - is it purely for sentimental reasons? Why pay all the expenses associated with storing/protecting it?

User avatar
Doc
Posts: 9241
Joined: Sat Feb 24, 2007 1:10 pm
Location: Two left turns from Larry

Yes

Post by Doc » Mon Nov 14, 2011 10:13 am

nisiprius wrote:This is an experiment to see whether or not there's much agreement on the definition of what constitutes "money."
The federal reserve has already invented the wheel. (Whether or not the wheel has a flat tire on it is best left to another forum.)
In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time.[1] There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits (depositors' easily accessed assets on the books of financial institutions).
In the money supply statistics, central bank money is MB while the commercial bank money is divided up into the M1-M3 components. Generally, the types of commercial bank money that tend to be valued at lower amounts are classified in the narrow category of M1 while the types of commercial bank money that tend to exist in larger amounts are categorized in M2 and M3, with M3 having the largest.
http://en.wikipedia.org/wiki/Money_supply
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

xerty24
Posts: 4827
Joined: Tue May 15, 2007 3:43 pm

Re: Is there any agreement on what money is?

Post by xerty24 » Mon Nov 14, 2011 10:32 am

You left off the option of giant sunken stone disks as money. It's a great story -

http://www.npr.org/blogs/money/2011/02/ ... tone-money
No excuses, no regrets.

User avatar
Oicuryy
Posts: 1330
Joined: Thu Feb 22, 2007 10:29 pm

Re: Is there any agreement on what money is?

Post by Oicuryy » Mon Nov 14, 2011 11:10 am

Years ago Milton Friedman wrote an article about money for Encyclopedia Britannica. Here is a link to an expanded version of that article.
http://www.britannica.com/nobelprize/article-247592
The excerpts below are from an earlier version.
Milton Friedman wrote:The basic function of money is to enable buying to be separated from selling, thus permitting trade to take place without the so-called double coincidence of barter. If a person has something to sell and wants something else in return, it is not necessary to search for someone able and willing to make the desired exchange of items. The person can sell the surplus item for general purchasing power--that is, "money"--to anyone who wants to buy it and then use the proceeds to buy the desired item from anyone who wants to sell it.

Separation of the act of sale from the act of purchase requires the existence of something that will be generally accepted in payment--this is the "medium of exchange" function of money. But there must also be something that can serve as a temporary abode of purchasing power, in which the seller holds the proceeds in the interim between the first sale and the subsequent purchase, or from which the buyer can extract the general purchasing power with which to pay for what is bought. This is the "asset" function of money.

Anything can serve as money that habit or social convention and successful experience endow with the quality of general acceptability, and a variety of items have so served--from the wampum (beads made from shells) of American Indians to cowries (brightly coloured shells) in India, to whales' teeth among the Fijians, to tobacco among early colonists in North America, to large stone disks on the Pacific island of Yap, to cigarettes and liquor in post-World War II Germany. The wide use of cattle as money in primitive times survives in the word pecuniary, which comes from the Latin pecus, meaning cattle.
Anything can be used as money but few things are. In the U.S., U.S. dollars are money. Only dollars meet the "general acceptability" test. The Federal Reserve note is money because it is ten dollars.

Australian dollars are money in Australia. The Perth mint coin is money because it is one million Australian dollars. It is still money even though it is in a form that is too inconvenient to be used in everyday transactions.

We do not need to carry money in our pockets to use it as a medium of exchange. For example, we can leave it stored in a bank. A personal check is not money. It is an instruction to a bank to transfer money (dollars) from the writers account to the payee. Debit cards to the same thing. Most of the dollars in banks are in the form of bookkeeping entries on the banks' records.

Silver wire and cigarettes are not money because they do not meet the "general acceptability" test.

There is no such thing as deposits in money market mutual funds. Shares of money market funds, like shares of all mutual funds, represent an ownership interest in an investment company. Shares are bought with money and sold for money. Shares are assets but they are not money because they are not used as a medium of exchange.

There is some debate about how well dollars perform the "asset" function of money. Most of us realize that dollars slowly lose purchasing power over time. So we exchange dollars for other assets that we hope will do a better job of preserving purchasing power. However, those other assets are not money.

Money is a thing that is generally accepted for use for both the "medium of exchange" and "asset" functions. In the U.S., dollars are that thing.

Ron
Money is fungible | Abbreviations and Acronyms

User avatar
Topic Author
nisiprius
Advisory Board
Posts: 39476
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Is there any agreement on what money is?

Post by nisiprius » Mon Nov 14, 2011 1:04 pm

Ron, an informative post, but I was trying to get at the meta-question "is there general agreement on what money is?" This was pursuant to a snippy post I made in another thread, to the effect that the concept of money is ideological and that you can't get people to agree what money is. hazlitt777 replied with a thoughtful post, but one that I think expressed the characteristics that we'd like money to have. The debate is whether any particular thing X actually has those characteristics or not.

I think almost everyone would agree that Vanguard Total Bond Market Index Fund is an index fund, and that PIMCO Real Return Fund is not an index fund. I think almost everyone would agree that PIMCO Real Return Fund is a bond fund and that Fidelity Contrafund is not a bond fund. So there are things in investing that have objective definitions that people with different investing theories or different political or economic views can agree on. I don't think "what money is" is one of them.

Milton Friedman is a respected authority, but Wikipedia's article on him says "Friedman was the main proponent of the monetarist school of economics." I think that statement would be very widely accepted. I do not think people who are associated with words ending in "-ist" are likely to hold views finding universal agreement.

In any case, if there were general agreement on what money is, there should have been a bimodal distribution of responses--every choice either would be money or would not be money, and every choice would have either gotten close to 100% or close to 0% responses. I don't see any such clear distinction, and feel that my meta-question--is there agreement--can be answered "no."

Alas, there's no way to tell what percentage of responders actually checked "A $10 bill, Federal Reserve note, that says "legal tender" on it." It would be interesting to know just how close to 100% it actually was. At an early stage in the polling, it was not the choice with the largest number of responses, so it cannot actually be 100%.

Perhaps I should try a similar poll, "is there general agreement on what an index fund is?" Except that the answers are so obvious that people would think it was a trick question and overthink it.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

User avatar
englishgirl
Posts: 2476
Joined: Thu Mar 01, 2007 5:34 pm
Location: FL

Re: Is there any agreement on what money is?

Post by englishgirl » Mon Nov 14, 2011 1:20 pm

Not that this advances your poll any, but back in the old country, it always used to tie my brain in knots as a child that the bank notes said on them "I promise to pay the bearer on demand the sum of one pound" or similar language. I always used to ask my parents just what the Governor of the Bank of England would give me in return for handing over a fiver. I never quite got a good answer - usually the equivalent amount in coins placated me more than the thought that I'd get other bank notes back, which were also just promissory notes. It made it seem like the bank notes were never really money, but just a promise of money.
Sarah

User avatar
Ice-9
Posts: 1450
Joined: Wed Oct 15, 2008 12:40 pm
Location: Rockville, MD

Re: Is there any agreement on what money is?

Post by Ice-9 » Mon Nov 14, 2011 1:53 pm

What about...

...postage stamps?
...food stamps?
...coupons?

User avatar
fishnskiguy
Posts: 2598
Joined: Tue Feb 27, 2007 1:27 pm
Location: Sedona, AZ

Re: Is there any agreement on what money is?

Post by fishnskiguy » Mon Nov 14, 2011 2:30 pm

I voted for everything except silver wire and cigarettes. Although there was a time in recent history when cigarettes were money as Frierdman points out.

Chris
Trident D-5 SLBM- "When you care enough to send the very best."

Rodc
Posts: 13601
Joined: Tue Jun 26, 2007 9:46 am

Re: Is there any agreement on what money is?

Post by Rodc » Mon Nov 14, 2011 2:53 pm

Perhaps I should try a similar poll, "is there general agreement on what an index fund is?" Except that the answers are so obvious that people would think it was a trick question and overthink it.
We could always argue about whether only cap-weighted index funds are real index funds, or if "fundamental" index funds are really index funds. :D
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

FredPeterson
Posts: 1025
Joined: Fri Jul 10, 2009 8:41 pm
Location: Madison, WI

Re: Is there any agreement on what money is?

Post by FredPeterson » Mon Nov 14, 2011 4:26 pm

There is only one logical answer given the choices presented, the question and our current monetary exchange system.

User avatar
Topic Author
nisiprius
Advisory Board
Posts: 39476
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Is there any agreement on what money is?

Post by nisiprius » Mon Nov 14, 2011 4:40 pm

englishgirl wrote:Not that this advances your poll any, but back in the old country, it always used to tie my brain in knots as a child that the bank notes said on them "I promise to pay the bearer on demand the sum of one pound" or similar language. I always used to ask my parents just what the Governor of the Bank of England would give me in return for handing over a fiver. I never quite got a good answer - usually the equivalent amount in coins placated me more than the thought that I'd get other bank notes back, which were also just promissory notes. It made it seem like the bank notes were never really money, but just a promise of money.
There actually was a pretty good answer to that when I was growing up in the U.S. The commonest paper currency was designated "silver certificates" (blue Treasury seal), and dimes, quarters, half-dollars, and silver dollars were made of silver (alloy).

As kids we had imagined the bank would have piles of gleaming silver bullion stashed away somewhere. A real let-down to be told that all it meant was that you could take your dollar bill to the bank and get four quarters in change. These days, the idea of exchanging a "silver certificate" for silver coins seems pretty exotic.

I don't know whether or not you had actually had the right to get four quarters in change for a United States Note (red Treasury seal) or a Federal Reserve Note.

As a kid I always imagined that a British pound sterling meant you could exchange it for an actual pound, as in sixteen--uh, twelve--ounces--, of sterling silver. So obvious, it never occurred to me to ask. I guess not, huh?

I keep wondering about the psychological effect of the changes in the appearance of U. S. currency. From my childhood up until the mid-1990s, U. S. currency looked exactly the same. We'd travel abroad and see those foreign bills that used, heavens to betsy, several different colors of ink and strangely asymmetrical appearance and everyone would say the same thing: "it looks like play money." Well, they've done their best not to make the change too shocking, but the last go around--the HUMONGOUS in-your-face portraits--have gone too far. U. S. currency now has crossed the boundary: it looks phony to me. Play money. Stage money. Monopoly money. To anyone else?

(How does making the portrait bigger deter counterfeiting, by the way?)
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Don Robins
Posts: 664
Joined: Fri May 06, 2011 1:44 pm

Re: Is there any agreement on what money is?

Post by Don Robins » Mon Nov 14, 2011 4:58 pm

Whenever the group decides what money is, please send some my way.

Fallible
Posts: 7036
Joined: Fri Nov 27, 2009 4:44 pm
Contact:

Re: Is there any agreement on what money is?

Post by Fallible » Mon Nov 14, 2011 6:09 pm

I'm not certain this applies here, but here's a link to a very interesting column, "Remember, Money Has Memory," by Chris Farrell, one of my favorite columnists:

http://www.startribune.com/business/you ... 92898.html
John Bogle on his often bumpy road to low-cost indexing: "When a door closes, if you look long enough and hard enough, if you're strong enough, you'll find a window that opens."

User avatar
Oicuryy
Posts: 1330
Joined: Thu Feb 22, 2007 10:29 pm

Re: Is there any agreement on what money is?

Post by Oicuryy » Mon Nov 14, 2011 6:24 pm

nisiprius wrote:Ron, an informative post, but I was trying to get at the meta-question "is there general agreement on what money is?"
We must agree on what is money. Otherwise we would still be on the barter system.

Ron
Money is fungible | Abbreviations and Acronyms

hazlitt777
Posts: 1033
Joined: Fri Aug 12, 2011 4:10 am
Location: Wisconsin

Re: Is there any agreement on what money is?

Post by hazlitt777 » Mon Nov 14, 2011 11:22 pm

englishgirl wrote:Not that this advances your poll any, but back in the old country, it always used to tie my brain in knots as a child that the bank notes said on them "I promise to pay the bearer on demand the sum of one pound" or similar language. I always used to ask my parents just what the Governor of the Bank of England would give me in return for handing over a fiver. I never quite got a good answer - usually the equivalent amount in coins placated me more than the thought that I'd get other bank notes back, which were also just promissory notes. It made it seem like the bank notes were never really money, but just a promise of money.
Actually, the bank notes were a promise to pay a weight in silver. The paper was known as fiduciary media, or currency. The stuff you could get from the bank with the currency was properly speaking, money, either silver or gold, depending upon what that particular country was using for money.

In the US, up to 1934, you needed to turn in twenty dollars and sixty seven cents of currency to obtain one troy ounce of gold which we were using as money back then.

All names of currencies, or at least European and American currencies, with the exception of the Euro, were once in effect, names for a specific weight in gold or silver.

hazlitt777
Posts: 1033
Joined: Fri Aug 12, 2011 4:10 am
Location: Wisconsin

Re: Is there any agreement on what money is?

Post by hazlitt777 » Mon Nov 14, 2011 11:27 pm

tpm871 wrote:"Bitcoins" would have been an interesting option.

http://en.wikipedia.org/wiki/Bitcoin
The interesting question is why did the market reject them as money?

555
Posts: 4955
Joined: Thu Dec 24, 2009 7:21 am

Re: Is there any agreement on what money is?

Post by 555 » Tue Nov 15, 2011 12:07 am

How about time?

cb474
Posts: 807
Joined: Tue Jan 19, 2010 6:32 am

Re: Is there any agreement on what money is?

Post by cb474 » Tue Nov 15, 2011 2:00 am

hazlitt777 wrote:
tpm871 wrote:"Bitcoins" would have been an interesting option.

http://en.wikipedia.org/wiki/Bitcoin
The interesting question is why did the market reject them as money?
I don't understand in what sense the market has rejected bitcoins as money? There are millions of them in circulation, with a total value of millions of dollars. They are accepted in actual marketplace transactions, by some people. And there are markets where they can be exchanged for other currencies. It seems to me like they're are operating exactly like a currency. The amount of bitcoins may be relatively limited, as well as the number of people using them, but the market has hardly rejected them.

The real problem with bitcoins is that it is illegal to create a currency in the U.S. that competes with the U.S. dollar. So if bitcoin gets too big, the Federeal government will shut it down. This has happened with other attempts to create private currencies. Of course, given the decentralized, anonymous, peer-to-peer nature of the bitcoin system and it's global scale, it will be interesting to see how and if the federal government can shut it down, if it ever becomes popular.

That aside, I think the answer to the question, "what is money?," is that money is whatever people agree it is. As long as we all agree that dollars or digits in an account are money. It's money. But if you have to ask, as the thread's title does, "Is there any agreement on what money is?," then it starts to lose it's value. If someone gives me a dollar (or say a unit of whosawhatsis) and I say, "is this money?," I probably won't accept it and then it's not money.

I'd probably also say money is only truly money in the instance of transaction. Money is money when one party offers it and another accepts it in lieu of some form of material wealth or servcie as payment for a transaction, holding the belief that they in turn will be able to spend the money and have it accepted in the same manner. In fact, this is why by law in the U.S. you cannot reject dollars as payment for a good or service. It assures people's faith in the currency and faith in the currency is what makes it currency (although it is interesting that in this instance faith in the currency requires the implicit coercion of the state).

This is why, as in Jfet's example above, an unrealized paper gain in a mutual fund would not be considered by many to be money. It's too ephemeral. It could go as easily as it came. It's not money until you spend it (realizing the gain). On the other hand, deposits in a money market account might seem more real, but that's only because it's less likely to lose value. Of course, what you have in a money market account are not really dollars (like in a bank account), rather you own shares, which happen to be pegged at one dollar in value. But it is possible to "break the buck" in money market accounts, so in a certain sense even those deposits are no more money than unrealized gains in a equity mutual fund. It's really not until you transfer the money from the money market account to a bank account that they become dollars, when, say, Vanguard converts the shares in the money market account into dollars and, in essence, gives you dollars in exchange for the shares; then there is a transaction in which dollars are offered and accepted for something else that is not currency (shares in the money market account) and in the transaction money, as it were, happens.

I would also say that when the U.S. issued Silver Certificates or was on the gold standard, as some mention above, this did not make money somehow more material and real. The idea that something material stands behind the abstraction of paper money, or digits in an account, is comforting. But it's still just an idea. Gold and silver only have value as a guarantee for paper money, because people agree that they have value. So basing money on something like gold just pushes the question back a level. Gold is simply being used the way the law is, when it compels people to accept a local currency for all transactions. It engenders people's faith in a system. But it's the faith and the use of money as money that makes it money.

Also I don't think something which is a store of value, also mentioned above, distinguishes the nature of money. Lots of things (paintings, property, rare gemstones) can be used as a store of value. But they are in no way money, simply because they are not accepted and agreed upon and used as money. Of course, in the right context, anything can become money (cigarettes, stones). It simply requires an agreement that the thing is no longer the thing itself, at least in the instance of the transaction, but rather an abstraction that is accepted for all transactions, in lieu of actual material objects of wealth or services (stores of value, as it were).

So money is money when someone spends it and another accepts, in lieu of actual objects of material wealth or services, because that is the moment in which the faith and trust in that form of money is in actual practice enacted (or realized) and it is this activity of transaction and faith that makes it money.

This is probably also why the question, "what is money?," is compelling, because money is hard to pin down. It's not really a thing. It's an activity and a belief.

In this regard, I would also say, returning to the thread's heading, "Is there any agreement on what money is?," that if this is a question about what economists and other "experts" think, then the answer is probably no. But if it is a question about actual practice, then the answer is, there is only agreement about what money is. So in theory no, in practice yes.

User avatar
bertilak
Posts: 6927
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Is there any agreement on what money is?

Post by bertilak » Tue Nov 15, 2011 5:45 am

cb474 wrote:I don't understand in what sense the market has rejected bitcoins as money?
In the following sense ...
if it ever becomes popular.
Many would consider lack of popularity as at least a weak, or passive, form of rejection.

In the case of bitcoins it is probably less of an active rejection than it is a near complete lack of awareness. If bitcoins were more popular with those who are aware of them, their acceptance might have spread more widely. In this sense "the market" has rejected them even if we can't attribute that to the multitudes actively, consciously and individually doing so.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

cb474
Posts: 807
Joined: Tue Jan 19, 2010 6:32 am

Re: Is there any agreement on what money is?

Post by cb474 » Tue Nov 15, 2011 6:42 am

bertilak wrote:
cb474 wrote:I don't understand in what sense the market has rejected bitcoins as money?
In the following sense ...
if it ever becomes popular.
Many would consider lack of popularity as at least a weak, or passive, form of rejection.

In the case of bitcoins it is probably less of an active rejection than it is a near complete lack of awareness. If bitcoins were more popular with those who are aware of them, their acceptance might have spread more widely. In this sense "the market" has rejected them even if we can't attribute that to the multitudes actively, consciously and individually doing so.
I guess it seems to me like the term "the market" is being used in an pretty vague and general manner here. What market? Where is this market that has done this rejecting?

I honestly just have no idea what (if anything) "the market" means in this claim. People? The general level of "awareness" of people? That's the definition of a or "the" market?

Also, if something is not hugely popular then it has been rejected? So it's only things that are used by a certain limit percentage of people that are accepted by the market? If a company is small and has a very small (but growing) number of shares circulating in an equity market has it been rejected, because it's not popular enough? I'd bet there are far more people who have heard of Bitcoin than who have heard of most companies that are publically traded on the New York Stock Exchange. So have all of those companies also been rejected by the awareness standard?

The reality is Bitcoin has created it's own market. Tens of thousands of people use it. This market in bitcoins is growing. It may be small, but it is a market. I just don't think size or general awareness of the overall population has anything to so with what a or "the" market is.

I also think that it is premature at this point to say that Bitcoin has been rejected. It's in its incipient stages. For it to succeed on wide scale requires the building of exactly the kind of faith in the system I describe in my post above. If it happens it will be a slow process. It may be unlikely to ultimately get very far, but for now it's growing. The fact that it's even being used at all could be taken as a sign of success, given the incredible hurdles such a thing would have to overcome. Who knows how it will all end.
Last edited by cb474 on Tue Nov 15, 2011 7:17 am, edited 1 time in total.

User avatar
bertilak
Posts: 6927
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Is there any agreement on what money is?

Post by bertilak » Tue Nov 15, 2011 7:17 am

cb474 wrote:I honestly just have no idea what (if anything) "the market" means in this claim. People? The general level of "awareness" of people? That's the definition of a or "the" market?
I can keep it simple and live with the definition in Wikipedia:
A market is any one of a variety of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services (including labor) in exchange for money from buyers.
I would add that when we say "THE market" we mean the larger wide-spread market, as opposed "A market" segment.

Since bitcoin aspires to work as money I'd say if it was accepted in most (or even many) day-to-day market transactions then it was accepted and therefore not rejected ("rejected" being the opposite of "accepted").

So when I can do any three of these with bitcoin, I'll say it has been "accepted by the market": buy groceries, pay my dentist, get an oil chang, buy from Amazon, renew my driver's license, pay my homeowners' Association dues, pay a plumber, eat at a restaurant, buy a Vanguard mutual fund.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

cb474
Posts: 807
Joined: Tue Jan 19, 2010 6:32 am

Re: Is there any agreement on what money is?

Post by cb474 » Tue Nov 15, 2011 7:26 am

To me your citation from wikipedia supports my argument that Bitcoin has in fact created its own market and by that measure is, so far, a success.

Beyond that I think that there are so many small and niche products out there in the general "market" that fail your your popularity standard that to use this standard as a measure of Bitcoin is extremely selective. I also continue to think that the way the term "market" is being used here is so general and vague as to be nearly meaningless (and hence easy to use to apply to Bitcoin selectively).

How about a small local bank or credit union that has only a few thousand members and limited services. Has it be rejected by "the market"? That's a lot less people than use Bitcoin. Or is it simply operating successfully within its niche?

What's more, you can't, "buy groceries, pay my dentist, get an oil chang, buy from Amazon, renew my driver's license, pay my homeowners' Association dues, pay a plumber, eat at a restaurant, buy a Vanguard mutual fund," with dinars (well maybe Amazon accepts them)? Has the dinar been rejected by "the market"? Or is it simply that you (I assume) and most people in this forum do not use dinars, but that doesn't mean it's not a legitimate currency. Just as a certain group of people currently use bitcoins and are happy with it, for what it can do, even enthusiastic.

In fact, now that I think of it, you probably can't use PayPal for most of the activities you listed. Has it been rejected by "the market"? What about when PayPal was starting out? Should it have been declared rejected by the market when it only had sixty thousand users?

It just seems to me that the definition of "the market" being suggested here is in fact not about, "the larger wide-spread market," as you say, but about something very selective and local and personal that's being projected onto an idea of "the larger wide-spread market."

I don't really even think there is a "larger wide-spread market" in the sense you're suggesting. There are instead a lot of different people and practices doing a lot of different things that overlap and do not overlap to varying degrees, in more and less local (I don't mean this geographically) markets. To the extent that the sum total of all of that constitutes something like a wider market, limiting what that market is to only things which are universally used by nearly all participants excludes just about everything in "the market" from "the market." There may not be anything that meets that standard. It's all the many small things, only used by some people, that make up most of the market. This is why a high degree of general popularity is such a narrow one-sided standard by which to measure acceptance or rejection.

And again, Bitcoin is in its incipient stages (it's been around for less than two years). To delcare it accepted or rejected at this point is premature. People are using it and it's growing. That to me is not the hallmark of something that has been rejected. When it dwindles and disappears or stagnates for years, then say that it has been rejected.

User avatar
VictoriaF
Posts: 18986
Joined: Tue Feb 27, 2007 7:27 am
Location: Black Swan Lake

Time is not equivalent to money

Post by VictoriaF » Tue Nov 15, 2011 8:18 am

555 wrote:How about time?
Time and money are not quite equivalent. The expenditure of time on making money far exceeds the expenditure of money on buying time.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

User avatar
Topic Author
nisiprius
Advisory Board
Posts: 39476
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Is there any agreement on what money is?

Post by nisiprius » Tue Nov 15, 2011 8:27 am

Again, please remember that I am not asking "what is money."

I am asking--let me reword slightly "Is there any agreement on what things are money?"

If I were to put my personal check, a $10 bill, a spool of silver wire, the one-ton Perth Mint gold "coin," a money market mutual fund account statement, and a pack of cigarettes on a table... and a bitcoin*... and invite the ghosts of Milton Friedman, John Kenneth Galbraith, Paul Samuelson, John Maynard Keynes, and Friedrich Hayek to point to the things that are "money," would they pretty much point to the same things?

If I asked Galileo, Tycho Brahe, Kepler, Urbain Le Verrier, Maria Mitchell, Percival Lowell, and Mike Brown** to go into the Mount Palomar Observatory on a dark night and point it at the things that are "planets," would they pretty much point to the same things?

*Oh, I don't know how to put a bitcoin on a table. A smartphone whose screen is showing someone's bitcoin account and a live button that can be pressed to make a transfer?

**Mike Brown, author of "How I Killed Pluto and Why It Had It Coming." 89% agreement ain't bad!
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

manuvns
Posts: 688
Joined: Wed Jan 02, 2008 2:30 pm

Re: Is there any agreement on what money is?

Post by manuvns » Tue Nov 15, 2011 10:23 am

money is a resource that lets me get the things i need in my life .

Post Reply