bain_y_howells__monetary_economics__policy_and_its_theoretical_basis

tion costs in an economy (see Section 1.4).
The dominant role of these three is usually taken to be money as a medium
of exchange. This fits in with the common view of money exemplified
by the dictionary definition given in Section 1.2. Further, any asset that performs
the role of a medium of exchange is generally held to be able also to
act as a store of value and a unit of account. Hicks (1967) denied this, arguing
that money could be a medium of exchange without being a store of
value as long as, over the course of a day’s trading, no individuals have sold
more than they have bought and vice versa. However, this would be a very
special case and the usual view is that all forms of money are stores of
value, whereas the reverse is not true (see Harris, 1985). Thus, acting as a
medium of exchange is the only role that clearly sets money apart from
other assets.
Pause for thought 2.4:
DEFINITIONS OF MONEY IN ECONOMICS 35
What is a cash-in-advance constraint? (If in doubt, see Section 1.4). Would money
be a medium of exchange but not a store of value if there were a cash-in-advance
constraint?
Our discussion above, however, alerted us to a problem with the notion
of ‘money’ as a medium of exchange since credit acts as a medium of
exchange but is almost always excluded from definitions of ‘money’. One
way out is to follow Shackle (1971) and distinguish between the medium of
exchange (which includes credit) and a means of payment, in the sense of a
means of final settlement of debt. It is this latter idea that most writers have
in mind. Among the definitions along these lines, we have:
...a temporary abode of purchasing power (Friedman, 1963);
...any asset which gives immediate command over goods and services
(Struthers and Speight, 1986);
...any property right that is generally acceptable in exchange (Fisher,
1911).
These are descriptive or a priori definitions of money deriving from the
notion of money as a means of payment but also admit of the idea of a store
of value. However, none of them gives a precise idea of which assets should
be included in a measure of the economy’s money stock. Everything
depends on what is acceptable.
Nonetheless, the concentration on the role of money as a means of payment
led to the common acceptance of the ‘narrow’ view of money as an