Everyone Uses It. Almost No One Can Define It

The word “money” comes from a goddess. Specifically, from Juno Moneta, an epithet of the Roman goddess Juno, in whose temple on the Capitoline Hill the Romans minted their coins from at least the fourth century BC onward. The Latin moneta passed into Old French as moneie, and by around 1290, the word appeared in written Middle English. Every time you pull a bill from your wallet or tap your phone at a register, you are participating in a tradition that runs from ancient Rome to the digital present, and the word you use to describe it carries that whole history inside it.

But the etymology is just the beginning of the answer. What is money, really?

This is the question we are starting with at the Money Wisdom Project this month, and it turns out to be one of the most contested and consequential questions in the history of human civilization. Philosophers, economists, statesmen, and theologians have wrestled with it for more than two thousand years, and they have not always agreed. The disagreements are not minor. They go all the way down to first principles: what gives money its value, where money comes from, who should control it, and what happens when it fails.

A note on terms before we begin. The classical functions of money, the framework that appears in nearly every serious treatment of the subject from Aristotle to the present, are three: money as a medium of exchange (it allows us to trade without barter), money as a unit of account (it gives us a common measure of value), and money as a store of value (it allows wealth to be preserved across time). Keep those three functions in mind as we read the sources. They are the thread that runs through all of it.

What the Ancients Said

One of the earliest and most influential attempts to define money comes from the ancient Greek philosopher Aristotle (384-322 BC). In Politics: A Treatise on Government, Aristotle writes of money in terms of its proper purpose: “employing it for the purpose it was originally intended, namely exchange.” (https://www.gutenberg.org/ebooks/6762.) The passage in context is worth reading carefully, because Aristotle is doing something more than defining a tool. He is making a moral argument.

In Politics, Aristotle introduces the concept of chrematistics, or the art of acquisition, and draws a sharp distinction between two kinds of getting: natural acquisition, obtaining what you need to live well, and unnatural acquisition, accumulating money beyond any natural limit simply for the sake of having more.

He writes:
There are two sorts of wealth-getting, as I have said; one is a part of household management, the other is retail trade: the former necessary and honorable, while that which consists in exchange is justly censured; for it is unnatural, and a mode by which men gain from one another. The most hated sort, and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural object of it. For money was intended to be used in exchange, but not to increase at interest.

The distinction matters because Aristotle is insisting that money has a proper use, and that using it in any other way deforms both the money and the person using it. Two and a half millennia before the debates about central banking and quantitative easing, a Greek philosopher was already arguing that what you believe about money’s purpose determines what you will do with it.

In the Nicomachean Ethics, Aristotle extends the analysis further, examining money’s role in securing proportional justice in exchange. (https://www.gutenberg.org/ebooks/8438.)

There, he writes of money as the common measure that makes equitable trade possible between people whose goods and labor are of very different kinds:
Now proportionate return is secured by cross-conjunction. Let A be a builder, B a shoemaker, C a house, D a shoe. The builder, then, must get from the shoemaker the latter’s work, and must himself give him in return his own. If, then, first there is proportionate equality of goods, and then reciprocal action takes place, the result we mention will be effected. If not, the bargain is not equal, and does not hold; for there is nothing to prevent the work of the one being better than that of the other; they must therefore be equated. And this holds for the other arts also; for they would have been destroyed if what the patient suffered had not been equal in quantity and quality to what the agent did. For it is not two doctors that associate for exchange, but a doctor and a farmer, or in general people who are different and unequal; but these must be equated.

This is the unit of account function stated as a problem of justice. Without a common measure, equitable exchange is impossible. Money, for Aristotle, solves that problem, though it creates new moral dangers when pursued for its own sake.

Coming from a very different civilizational tradition, the ancient Indian philosopher and royal advisor Kautilya (ca. 350-283 BC), also known as Chanakya, gave money an equally precise treatment in the Arthashastra, his comprehensive treatise on statecraft, economic policy, and military strategy, written around the fourth century BC. Kautilya’s definition, direct and administrative in its language, reads: “The examiner of coins (rupadarsaka) shall regulate currency both as a medium of exchange (vyavaharikam) and as legal tender admissible into the treasury (kosapravesyam).” (The Penguin Books India edition of the Arthashastra, translated by L.N. Rangarajan, is the standard modern edition. A partial text is available through the Internet Archive.)

Where Aristotle was primarily interested in money’s ethical dimensions, Kautilya was interested in its administrative ones. He advocated for the state’s active involvement in mining, minting, and standardizing currency as instruments of good governance and treasury management. He was less concerned with whether money was being used virtuously and more concerned with whether it was being used effectively and whether the state was capturing its share. The contrast with Aristotle illuminates a tension that has never gone away: is money a moral institution, or a technical one?

What Adam Smith Said

Nearly thirteen centuries after the Arthashastra and two thousand years after Aristotle, Adam Smith (1723-1790) published An Inquiry into the Nature and Causes of the Wealth of Nations in 1776, and with it produced the foundational text of modern economics. (https://www.gutenberg.org/ebooks/3300.)

Smith’s definition is practical and grounded in observation. In Book I, he writes:
Money is the known and established instrument of commerce, for which everything is readily given in exchange, but which is not always with equal readiness to be got in exchange for everything.

Like Aristotle, Smith sees money as an instrument of exchange. But Smith adds something Aristotle did not: a theory of where value actually comes from. For Smith, value ultimately derives from labor.

He writes in Book I, Chapter V:
The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities.

This is the labor theory of value, which Smith uses carefully and which later thinkers, particularly Karl Marx, would take in very different directions. What is important for our purposes is what Smith says follows from it: money functions as a measuring rod for labor, allowing us to compare the value of things that would otherwise be incommensurable. A pair of shoes and a loaf of bread are not directly comparable. But if we know how much labor each represents, and if money measures labor, then money gives us a common language for the comparison.

Smith also argued that for money to function well, it must possess certain physical characteristics. He writes that for money to fulfill its roles as a medium of exchange, unit of account, and store of value, it must be “durable, portable, divisible, and have a stable value.” These four requirements, stated plainly in the eighteenth century, remain the standard by which any proposed form of money, whether a cowrie shell, a gold coin, a paper dollar, or a digital token, is still evaluated today.

What the Austrians Said

The most rigorous modern account of money’s origins and nature comes from the Austrian School of Economic Thought, founded by the nineteenth-century economist Carl Menger (1840-1921). (Principles of Economics https://mises.org/library/principles-economics.)

Menger’s central argument was that money was not invented by governments, philosophers, or legislators. It emerged organically from the market. When individuals trying to trade found barter too cumbersome, they began gravitating naturally toward goods that were widely desired, easy to carry, divisible, and durable. Over time, those goods became recognized as money, not because anyone declared them as such, but because they were the most efficient intermediaries for exchange. Gold and silver came to function as money, in Menger’s account, because they naturally possessed the qualities that made a good medium of exchange to a high degree.

He writes in Chapter 8 of the Principles:
There is no better method of enlightening each person about his economic interests than that he perceive the economic success of those who use the right means to achieve their economic ends. From this it follows that nothing furthered the interests and progress of society more than that, with the progressive development of goods into money-goods, each economizing individual was instructed by his own economic interest to exchange his less saleable goods for the most saleable goods, even if he did not require these for any immediate consumption purpose.

This is Menger’s concept of spontaneous order: money as the result of individual decisions, not collective planning. No authority decided that gold would be money. Thousands of individuals, each acting in their own interest, gradually converged on it as the most convenient intermediary, and that convergence, repeated enough times, became the institution we call money.

Ludwig von Mises (1881-1973), building on Menger’s 1912 work The Theory of Money and Credit (https://mises.org/library/theory-money-and-credit) added what he called the Regression Theorem: a logical proof that money cannot simply be declared into existence from nothing.

He argued:
No good can be employed for the function of a medium of exchange which, at the outset, at the moment when it was first used as a medium of exchange, did not have exchange value on account of other employments. And the theory also furnishes a complete explanation of the present-day exchange value of money. Since the value of money is not determined in the way in which the value of production goods is determined, but in the way in which the value of consumption goods is determined, the problem of the value of money is seen to belong to the theory of direct exchange.

The Regression Theorem matters because it addresses the question that haunts every fiat currency: why does it have value if it is backed by nothing? Mises’s answer is that money always traces back to a commodity that had non-monetary value first. Something must anchor the chain. Take away the anchor entirely, and you are relying on nothing but the collective willingness to keep pretending, which is a different kind of thing.

Murray Rothbard (1926-1995), Mises’s student and the most systematic later expositor of the Austrian position, stated the theory with characteristic directness in his 1963 work Man, Economy, and State (https://mises.org/library/man-economy-and-state-power-and-market).

For Rothbard:
Money is a commodity that comes into general use as a medium of exchange in the free market. For an item to become money, it must first be desired for its non-monetary uses. Then, through a process of market selection, it becomes widely accepted as a medium of exchange.

Rothbard also expanded the analysis to its political implications. He argued that government intervention in the monetary system, through central banking and the creation of fiat money, systematically distorts economic signals, produces cycles of boom and bust, transfers wealth from savers to debtors and to the state, and ultimately corrupts the institution that makes complex economic life possible. Whether or not one accepts the full Austrian framework, the diagnosis of fiat money as a form of wealth transfer has been made by serious economists and historians across the political spectrum.

The Austrian framework is elegant and powerful. But it runs into a fascinating problem the moment you look beyond gold and silver to the full sweep of monetary history. Twelve-foot limestone disks on a Pacific island, digital tokens with no physical form, paper rectangles backed by nothing but government decree: all of these have functioned as money. Some of them still do. Which raises a question the Austrians did not fully settle: does money actually need intrinsic value, or is something else doing the real work? We take that question up in the next post.

Friedrich Hayek (1899-1992), another of the great Austrian economists, added a point that extends beyond monetary theory into the philosophy of knowledge. In The Road to Serfdom (1944) (https://mises.org/library/road-serfdom-0) and in his famous 1945 essay “The Use of Knowledge in Society” (https://www.econlib.org/library/Essays/hykKnw.html)

Hayek argued that the price system, including the prices set through monetary exchange, is a mechanism for transmitting information that is dispersed across millions of individuals and could never be aggregated by any central authority. When governments manipulate money, they are not just changing prices. They are corrupting the information system through which a complex economy coordinates itself.

What the Dictionaries Say

Modern lexical definitions attempt to hold the classical tradition together in a few words. Merriam-Webster defines money as “something generally accepted as a medium of exchange, a measure of value, or a means of payment.” (https://www.merriam-webster.com/dictionary/money).

The Oxford English Dictionary defines it as “any circulating medium of exchange, including coins, paper money, and demand deposits,”  (https://www.oed.com/view/Entry/85068).

Both definitions capture the three classical functions without taking a position on the deeper questions: where does money come from, what gives it value, and who should control it.

The Bank for International Settlements, grappling with the emergence of digital currencies, has extended the definition to include “a digital representation of value…may be used as a means of exchange and store of value, or for payment, remittance and investment purposes.” (https://www.bis.org).

What is striking about all of these definitions, from Aristotle in 350 BC to the Bank for International Settlements in 2023, is that the same three functions appear in every one of them. Medium of exchange. Unit of account. Store of value. Two and a half millennia of argument have not produced a fourth function, and they have not overturned any of the three. Whatever else money is, it is those things.

Why the Definition Matters

You might wonder why any of this is worth the time. If money works, why does it matter how we define it?

The answer is that how you define money determines everything that follows. Every major monetary policy decision of the twentieth century, from the creation of the Federal Reserve in 1913 to the abandonment of the gold standard in 1971 to the printing of trillions of dollars during financial crises in 2008 and 2020, was made by people who held, whether explicitly or implicitly, a theory of what money is. The Keynesian economists who dominated central banking after World War II believed that money was primarily a policy instrument, something governments could manage to smooth out economic cycles and maintain employment. The Austrians believed that money was a market institution whose manipulation invariably produced more damage than it prevented. These are not merely technical disagreements; instead, they are disagreements about the fundamental nature of money, and the policy choices that flowed from them affected, and continue to affect, billions of people.

The philosopher Georg Simmel (1858-1918), in his 1900 work The Philosophy of Money, (https://archive.org/details/philosophyofmone00sim) captured something important about why these disagreements run so deep:
Money’s value as a means is transformed into value as an end…The notion of money as the absolute means is consistent with its representing the highest imaginable unity of function. Because it is the purest function, it is the most perfect representation of a cognitive tendency which dissolves all being into processes, all substance into function.

Simmel is saying something that neither the economists nor the policymakers always acknowledge: money is not just a tool. It is a mirror. The kind of money a society uses, and the theories it holds about money, reflect and reinforce the kind of society it is.

The Question Beneath the Question

There is something even deeper at stake than economic theory. Money is a social institution, a technology of trust. When I accept your money, I am trusting that someone else will accept it from me. That trust is built on shared belief, sometimes backed by the physical properties of gold, sometimes by the force of law, and in a fiat system, by nothing more than collective confidence in the institution that issues it.

That is why the history of money is also a history of crises of trust: debasement, inflation, bank runs, currency collapses. These are not solely economic events. Rather, they are breakdowns in the social fabric itself. When money fails, the trust that makes cooperative life possible is damaged in deeply personal ways. Savings evaporate. Wages no longer stretch to the end of the month. Children go without.

This is why monetary literacy matters. Not because everyone needs to be an economist. But because money is too consequential to leave entirely to experts and institutions. Understanding what money is, how it has worked across the full sweep of human history, and what makes it trustworthy or fragile, is a form of literacy that every person, every child, every community deserves access to.

Primary Sources Referenced in This Post

Aristotle, Politics: A Treatise on Government, trans. William Ellis (London: J.M. Dent and Sons, 1928): https://www.gutenberg.org/ebooks/6762

Aristotle, The Ethics of Aristotle (Nicomachean Ethics), trans. D.P. Chase (Boston: E.P. Dutton, 1950): https://www.gutenberg.org/ebooks/8438

Kautilya, The Arthashastra, trans. L.N. Rangarajan (London: Penguin Books India, 1992)

Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (T. Nelson and Sons, 1852): https://www.gutenberg.org/ebooks/3300

Carl Menger, Principles of Economics (1871), trans. James Dingwall and Bert Hoselitz: https://mises.org/library/principles-economics

Ludwig von Mises, The Theory of Money and Credit (1912): https://mises.org/library/theory-money-and-credit

Murray Rothbard, Man, Economy, and State (1963): https://mises.org/library/man-economy-and-state-power-and-market

Friedrich Hayek, “The Use of Knowledge in Society,” American Economic Review (1945): https://www.econlib.org/library/Essays/hykKnw.html

Georg Simmel, The Philosophy of Money (1900): available through https://archive.org

Merriam-Webster Dictionary, s.v. “money”: https://www.merriam-webster.com/dictionary/money

Oxford English Dictionary, s.v. “money”: https://www.oed.com/view/Entry/85068

Bank for International Settlements, digital money framework: https://www.bis.org

The Money Wisdom Project is a 501(c)(3) nonprofit dedicated to teaching children, women, and communities about the history and nature of money through primary sources. Dr. Deanna Heikkinen is the author of Shells to Satoshi: The Story of Money and the Rise of Bitcoin and Ownschooling: Bitcoin, Sovereignty and Education.