bain_y_howells__monetary_economics__policy_and_its_theoretical_basis

THE MEANING OF MONEY 5
and so we have the possibility that money might take a variety of forms.
Nonetheless, for most people the word ‘currency’ indicates notes and coin
or cash or what might be called ‘ready money’ in everyday use. And yet,
the underlying idea remains that ‘money’ is anything that is acceptable in
payment for goods and services, and payment can occur without the transfer
of a physical asset. The most obvious example of this is the use of
cheques or debit cards to transfer funds from one bank account to another.
This leads to the notion that neither the cheque nor the debit card is money
but that the bank deposits people can call upon in order to make purchases
are money since the exchange is validated by the circulation of the bank
deposits to which cheques and debit cards refer
We begin to see the difficulty. ‘Money’, in monetary economics, does
not mean income or wealth. Rather, ‘money’ is any asset acceptable in
exchange for goods and services. We shall see that monetary economists
have spent a great deal of time discussing and testing the ‘demand for
money’. If we define ‘money’ as a set of assets generally acceptable in
exchange for goods and services, the demand for money is only an indirect
demand. What people demand are goods and services but they may need
money in order to carry out the act of exchange.
The first problem we face, then, arises because a variety of types of asset
may allow exchange to take place. This is especially so at an individual
level. Consider a person who has decided to give up stamp collecting but
who has a philatelist friend. The ex-stamp collector agrees to exchange his
stamp albums for a number of CDs. Plainly, the stamp collection has a
monetary value — it could be sold to a stamp dealer and the money thus
obtained could be used to buy other goods and services. However, the
stamp collection is not itself ‘money’ since for an asset to be considered as
such it must be generally or widely acceptable directly in exchange for
goods and services, not merely be acceptable in an occasional private transaction.
That is, to be classed as ‘money’, an asset must be exchangeable for
goods and services in general.
Thus, ‘money’ is a sub-set of all those assets that might be acceptable in
exchange. Once we acknowledge this, we introduce an element of uncertainty.
To decide which assets are ‘money’ and which are not, we need to
say what precisely we mean by ‘generally acceptable’. Further, the assets
that are generally acceptable in exchange might vary from one country to
another or from one period to another within the same country. As
Goodhart (1989a) notes, money is a social phenomenon that exists in all
societies but that is everywhere different.
Our second problem is more important. We need to say something about