I exchanged emails with someone last week. I tried to make what seemed an obvious point, but failed.
I’d like to try again. When one comes to the realization that what seems obvious, is not obvious to others, then the point needs reinspection and, if discovered to be still valid, re-explaining. The point is valid.
The point that I was trying to make is that money’s primary function is not as a medium of exchange. Many, many things have served that purpose adequately. Money’s primary virtue is its unique function of being able to hold a stable value over time. That becomes ‘obvious’ when inspecting the basis of the ideal trade, which involves maximum efficiency and requires no money, or medium of exchange, at all.
That is the rare situation of pure barter. Two people wish to trade. Each has a good that he doesn’t have a need for, and each has the need for the good that the other person has. Here is the clincher: both determine that each good is of the same value (e.g. his cup is worth my plate; his plate is worth my cup). In this instance. Each just hands over their good and accepts the other in return. No money or medium of exchange is necessary.
It is because this coincidence of wants is so unusual, that we need money, or at least a medium of exchange.
But why is a goat or a cup of salt, both of which have acted as trusted media of exchange, not as good as money? The reason that money is more desirable than media of exchange (AKA trade goods) is that money holds a stable value over time. Nothing else does. It is this one factor that a/ grants to money the status of measure of value, and b/ determines that money cannot be classified, let alone defined, as a good. A good has a value which each marketplace participant measures (quantifies). Money is what is used to do the measuring. What measures cannot also be the measured.
With anything other than a pure barter, one takes, in exchange for one’s good, something that is not the specific good that one wants. The desperate need is that this ‘something’ will hold its value until such times as one can exchange it for the good that one does want. Whether that be two minutes, two years or two decades is irrelevant. A goat might die or get diseased, or even drop in value because a huge herd has just turned up at the local market. The salt might get wet or, its value pushed down by a cartload of salt arriving in the village. It is money and nothing else that stores a stable value forever. Its value won’t rise or drop because less or more Gold comes to the market and it is, for all practical purposes, indestructible.
This one unique characteristic is what grants money (a known weight and fineness [purity] of Gold) its status. The certainty that what one is accepting for one’s good will stably hold its value forever is paramount in any trade other than one of pure barter.