Showing posts from March, 2009

Printing Currency, Not Money

This sounds like an academic distinction but it is not. Especially at times like these, knowing the difference is key to understanding the behavior of financial systems.

What is Money?
Let's start with a textbook definition of money and proceed from there. Most definitions include two parts, some add a third. According to them, money is:
a medium of exchangea store of valuea standard of value or unit of account (widely but not universally accepted)If you look closely at the first two definitions, you will see that money exists in the minds of those who use it. This is partially true for the third definition as well. (note: For all of you monetary theory geeks, please relax. These are deliberate simplifications designed to make the ideas accessible to a general audience, not a detailed exposition of precise financial models.)I can exchange my money for stuff.I can exchange my money for stuff later.I can exchange my money for a predictable amount of stuff later.Let's think …