11/12/13 – The Problem of Money, Part 1: What Is Money?

Thanks to The Independent Market Observer for the post…

The Independent Market Observer

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” — Mark Twain

What is money?

At first blush, the question either sounds pretty obvious or like a Zen koan. I think it’s worth asking, though, for the same reasons it was worth asking “What is a house worth?” in 2007. Although everyone thought they knew all about the real estate market, it turned out we didn’t. In the same vein, I think there’s a real benefit to taking a deeper look at exactly what money is, and has to be, to determine if what we think we know about it (and about current economic conditions) actually makes sense.

Let’s start with a common definition of money, as follows:

A good that acts as a medium of exchange in transactions. Classically, it is said that money serves as a…

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