The textbook / Chapter 1 · The Evolution of Money
What makes something good money?
Shells, salt, cows, gold, paper, bitcoin. People have tried almost everything. The things that lasted had a few traits in common, and you don't have to take our word for which ones.
Miss one and it breaks
Two out of three isn't enough.
- Scarce, durable, not portableYap's giant stone discs. Great savings, terrible for buying lunch.
- Portable, durable, not scarceAnything anyone can print or copy for free. Easy to spend, hard to keep its value.
- Scarce, portable, not durableSalt or grain. Valuable until it gets wet or the mice find it.
Don't trust, verify
Who says so? Compare the lists.
Three lists from two very different places: the Federal Reserve's own classroom lessons, and the economist who wrote the classic list in 1875. Each cell uses the source's own word.
| Trait | Federal Reserve lessonAtlanta, Philadelphia & St. Louis Feds, 2024 | St. Louis Fed videoExploring Economics, ep. 3 | W. Stanley JevonsMoney and the Mechanism of Exchange, 1875 |
|---|---|---|---|
| Scarce | scarce | relatively scarce | not named; closest is stability of value |
| Durable | durable | durable | indestructibility |
| Portable | portable | portable | portability |
| Divisible | divisible | divisible | divisibility |
| Accepted | acceptable | generally acceptable | utility and value |
| Stable value | stable | — | stability of value |
| Uniform | — | uniform | homogeneity |
| Easy to recognize | — | — | cognizability |
Highlighted rows are the three in the diagram. The lists mostly agree. The Fed's lesson defines scarce as limited in supply. Jevons puts utility and value first on his list of seven.
Go to the source
Read the lists yourself
Functions and Characteristics of Money
Six traits, each with a one-line definition.
Open the PDF →What Makes Something Useful as Money?
A short animated explainer: shells, salt, cows and copper, and why most failed.
Watch it →Jevons, Qualities of the Material of Money
Chapter V of the book that gave economics its standard list of seven qualities.
Read the chapter →Nick Szabo, Shelling Out: The Origins of Money (2002)
Why shells and gold worked: they were costly to make and couldn't be faked. His later bit gold idea built on this.
Read the essay →Follow the moneyScarcityCommodity moneyPurchasing powerSee the numbers: the dollar since 1800How we got here: the timeline