Crash Course Chapter 6: What Is Money?

Before we begin our tour through the economy, the environment, and energy, we need to share a common understanding of this thing called money.

Money is something that we live with so intimately on a daily basis that it probably has escaped our close attention.

Money should possess three characteristics. The first is that it should be a store of value. Historically, gold and silver filled this role perfectly because they were rare, took a lot of human energy to mine, and did not corrode or rust. By contrast, the US dollar pretty much constantly loses value over time – a feature which punishes savers and enforces the need to speculate and/or invest. A second feature is that money needs to be accepted as a medium of exchange, meaning that it is widely accepted within a population as an intermediary within and across all economic transactions. And the third feature is that money needs to be a unit of account, meaning that the money must be divisible and each unit must be equivalent.

It is crucially important that a nation’s money supply is carefully managed, for if it is not, the monetary unit can be destroyed by inflation.