Economists often describe money as having three distinctive characteristics, or functions. Money is:
- A medium of exchange
- A store of value
- A unit of account
I prefer a different typology in which money has three powers:
- The power to bring goods into life
- The power to trade for any object
- The power of measurement
To the extent that money loses these powers it becomes worth less or even worthless.
The power to bring goods into life means that you can trade money for food, clothing and shelter which are necessary for sustainment, as well as for various entertainments which are conducive to happiness.
Separate and discrete is the power to trade for any object. This means that you can trade money for food OR clothing OR shelter OR entertainment.
Finally, the discrete power of measurement means that where money trades equally for one good as for another, those goods can be said to be comparable in terms of money.
One can associate the three powers of money in various ways to money’s three functions as economists understand them, but then one loses any personal sense of the nature of money or its significance in human experience.
Notice that the three powers of money are not inherent to whatever is used for money, but that whatever is used for money will necessarily exhibit all three powers in every instance of it’s use.
Notice, too, that the powers of money can be strong or weak, positive or negative. This means that the natural phenomenon of money must be of different qualities. In effect, some money must be “good” and some “bad.”