Getting rid of the monetary triumvirate

Beranda › medium of account › medium of exchange › store of value › Unidad de Fomento

The textbook definition of money is anything that functions simultaneously as a store of value, a medium of exchange, and a medium of account. This is the monetary triumvirate, and we need to get rid of it.

The first problem with this explanation is that all goods and assets function as stores of value, some better than others. Items that can't 'store' value would be be worthless because their lives would be too fleeting to provide any utility. Even an ice cream cone serves as a store of value, at least for a few minutes.

So if everything serves as a store of value, then money must be that peculiar good that functions as both a medium of exchange and a medium of account, right?

Wrong. All valuable things function as media of exchange, or, put differently, they all have a degree of exchangeability. A head of cabbage is a cabbage farmer's medium of exchange, since he uses it exchange with a food distributor, and it also functions as one of the distributor's many media of exchange, since he uses it to exchange with a grocer, and it also functions as one of the grocer's many media of exchange, since the grocer holds an inventory of cabbage in order it to exchange with the public. We can quibble over the general acceptability of any given medium of exchange; a dollar bill is more exchangeable than a cabbage, after all. But a dollar bill, like a cabbage, is not universally acceptable—try buying a house with it, or Microsoft stock.

So if everything serves as a store of value to some degree or other, and everything serves as a medium of exchange to some degree or other, then money must be that peculiar good that functions as a medium of account.

The upshot is that the only binary difference between the various goods and assets in this world is along the medium of account-or-not axis, both the store of value and medium of exchange functions being ranges or spectra, not binary categories. This means that a good is either a medium of account, or it isn't. There's no point in using an umbrella word like "money" anymore, since medium-of-account stands on its own as a useful definition.

A medium of account, if you don't remember, is the good that we use to quote prices. There are only a handful of media of account in the world, with the great majority of things not functioning as media of account. Dollar bills are certainly a medium of account. Credit cards (combined with network fees) also function as a medium of account. There are weird artificial media of account, like whatever is used to define Chile's Unidad de Fomento. Commodities like cloth, or macutes, have served as media of account in West Africa, as have silver pennies in Europe.

So let's retire that tired old triumvirate. The word money is redundant and meaningless; if we really want to divide the world into these and those, the medium-of-account bucket is about all we need. The other two functions, store of value and medium of exchange, are pervasive rather than exclusive (everything has at least a little bit of each), and therefore can't serve as the basis for drawing strict lines between goods.