“The fateful errors of popular monetary doctrines which have led astray the monetary policies of almost all governments would hardly have come into existence if many economists had not themselves committed blunders in dealing with monetary issues and did not stubbornly cling to them.”
—Ludwig von Mises, Human Action.
I was chatting on the phone last week with Peter Coy, who was working on an article about money for The New York Times Magazine, when he mentioned the old, three-pronged textbook definition of money: you know, the one that says money is a medium of exchange, a store of value, and a unit of account. It’s the first thing most econ students learn about money. For many, I suspect, it’s all they remember.
Which is a shame, because it’s wrong.
In this post, I explain why it’s wrong. I trace the mistaken definition to past economists’ careless reading of that definition’s locus classicus, in William Stanley Jevons’ great work, Money and the Mechanism of Exchange. I next show how Jevons’ actual understanding of the meaning of “money” was shared by Carl Menger and later Austrian-school economists. I conclude with a plea for dispensing, once and for all, with the three-part textbook definition of “money,” in favor of the definition Jevons favored all along.
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