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What is Money - Definition of Money

Updated on November 3, 2010

Definition of Money: According to Walker, money what money does, but this definition of money cannot throw light on the definition of money because money does many things; it is just the functional theory of money.

Robertson has given the most satisfactory definition of money. According to him, anything, which is widely accepted in payment for good or discharges other kinds of business obligations, is called as money. It is not the physical characteristics of money that makes money acceptable it is of social significance. The idea of general acceptability worries some people to take it as flimsy. Money like other goods is demanded because it is useful, but money differs from others in terms of utility. It is not a consumer because it does not yield any direct utility, it is not a capital good because it is incapable of performing feats of physical transformation. It is the commercial theory of money.

According to some the sanction behind money is law. Professor Knapp and some others consider that it is the state that has created money and attribute its value to the external form given to it by the state. It is the state theory of money and the theory stands condemned now.

Thus whatever forms money comes has been now categorized into two kinds Super Money and Plastic Money, but the functions remains same as suggested by Professor Kinley.


Can we say money is medium of exchange?

Money cannot be said medium of exchange. Suppose, in real terms, one apple equals one orange and both are today priced at Rs. 5. Now Rs. 5 can be said to be medium of exchange between apple and orange only for today. It should have been ideally called medium of exchange if it continues to exchange one apple with one orange in real terms for all times to come. But with inflation, you cannot exchange an apple with orange with Rs. 5. It means money has also get a value of its own. You cannot say it does not have value of its own.

If I am right, Money, from economist’s point of view is just another kind of asset. Its value is also determined by demand and supply, but what nobody has answered is what money ought to be? Supposed today a labor toiled hard to earn Rs. 500 and money tomorrow depreciates ruining the value of his Rs. 500.

Now when the assets he built continue to hold value, why his Rs. 500 depreciated? Certainly money ought not to be this. If he had been given gold instead of paper, he would have still got something worthy. Some will argue that all assets bear the risk of being devalued, for them I would like to say that only nature have right to play games with humans, not something that is controlled by humans.


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    • profile image

      Okuhle Gubesa 6 years ago

      What make people to change into new type of money leaving the old money?

    • soni2006 profile image

      Rajinder Soni 7 years ago from New Delhi, India

      Yes if one money system will be gone, we will have another but we will be still living. Thanks for your comment friend.

    • Esuturtingas profile image

      Esuturtingas 7 years ago

      Good article. I think money is only a symbol, fetish, because if one money system will gone away- we will still live

    • soni2006 profile image

      Rajinder Soni 7 years ago from New Delhi, India

      Thank you so much London_guide, princeland, confused_girl, Suraj Pratap Singh, Amit Luthra, Pankaj, and moneycontrol for your views on what is money actually.

    • profile image

      moneycontrol 7 years ago

      A good article and great discussion on what is money.

    • pankaj3625 profile image

      Pankaj Pathak 7 years ago from Delhi

      Yes, it agree with Amit that money has value that can be stored over time and space but mere possession of money doesn't help us if no one is interested to trade. Suppose Mr. A has Rs. 1000 and he wants to purchase apples, but the situation is so worst that no one is ready to sell apples, in that situation what is the value of money. I know money is fluctuated according to the demand of goods but in that case what is value of money?

    • amit luthra profile image

      amit luthra 7 years ago from New Delhi, India

      Value of money can be stored over time and space. Savings are done in terms of money because there is no qualitative change like in commodity in barter system that can bring quantitative change.

    • profile image

      Suraj Pratap Singh 7 years ago

      First let us come out of all the fallacies and myths attached to Money! First of such kind is to detach the Government or its involvement in money (currency) actually Government does nothing when it comes to currency.

      Let us take the example of Indian Rupee where we can find the statement, "I PROMISE TO PAY THE BEARER THE SUM OF xxxx RUPEES". What does it mean? For.e.g if anyone goes to a furniture shop to buy some goods worth of 10000 Rupees, he will have to pay the currency sum

      of 10000 rupees in exchange of goods he buys.

      The person still owes sum of 10000 Rs (obligated) to shop keeper! How he fulfills it is when the person whom he paid should be able to acquire the goods/services in the same quantity on par/equivalent to what he had from him.

      How it is? In the midst comes the labor (Productivity), In order to get that sum of 10000 Rupees to buy goods from shop, he must have toiled and in turn to give the needed good the seller must have toiled, so ultimately it is their productivity (Labor) with respect to demand at any point of time props the value of currency!

      And for the Bill that stands an exchange agent is Guaranteed by Reserve Bank (Central Bank) as they balance the monetary flow in accordance with Supply and Demand.

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      confused_girl 7 years ago from Gurgaon, India

      Money is something for which everybody is willing to exchange goods and services. If you go with a bag of rice to the market, you may or may not be able

      to find somebody willing to trade it for a bag of sugar, but if you go with 100 rupees, people will be willing to trade.

      Listen/Watch to this lecture, if you wanna understand more about money:

    • profile image

      princeland 7 years ago from New Delhi, India

      What is meant by store of value? Suppose if I were a daily wage earner laborer, how would you explain me about this value? There may be a situation- howsoever hard you may cry at a 500 Rs. note, its not going to give you value. You would wish this 500 Rs note were a person, which you could grasp by his collar and ask "tell me where has your value gone? What happened to your value? Who stole your value? When everything I did- the building which I built, the minerals which I extracted, the mountains which I dug, continue to hold value, why did you 500 Rs. note lost your value?

      I think soni has tried to give a right definition of money till now because when somebody asks what is money actually he is asking four questions at once:

      1. What money actually is?

      2. What do people think money is?

      3. What money ought to be? and

      4. What ought to be money?

      And in above article soni has covered your money as medium of exchange and what money ought to be. I am looking for more answers.

    • london_guide profile image

      london_guide 7 years ago from Birmingham, West Midlands, UK

      Dude, all kinds of money (whether paper or metallic money) have to serve the role of being a store of value (wealth) as well as a medium of exchange, to be accepted as money.