Money & Finance › What money is & money theory
What money is: a shared, transferable claim
· Concept
Mainstream viewMost economists and practitioners agree.
Money is anything a community trusts and accepts in payment: a transferable claim on goods, services and the settling of debts.
See it on the Money & Finance map →How it works
Money has taken many forms: cattle, shells, metal coins, paper notes and, today, mostly digital bank entries. What they share is acceptance: you take a dollar because you trust the next person will. In the US, paper currency is only about a tenth of M2, the broad money supply; the rest is mostly deposits that banks create when they lend (see Banks create money). The form keeps changing; the trust behind it is the real asset.
Why it matters
Every price, loan, lease and tax depends on it. Seeing money as trust explains why inflation, bank runs and currency collapses happen.
Think of it like
Like a recorded deed: the paper itself is worth little; its value is that everyone, including the courts, recognizes the claim.
Facts, rules and data
Economics textbooks agree on the core definition. Fed data (the H.6 release) show currency is roughly $2.4 trillion of about $22 trillion in M2 (2025).
Debates and risks
Whether bitcoin and stablecoins count as money, and how money first arose (barter, credit or state decree), are still argued.
Inside this (5)
Connections (4)
▸Three jobs of money: exchange, unit of account, store of value define What money is: a shared, transferable claimFact, law or data
The connection
The three jobs are how economists define money in practice: anything widely used to pay, to price things and to hold value counts as money. Something that fails at them, like a currency in hyperinflation, starts to stop being money.
When and why
Foreshadowed by Aristotle, set out by William Stanley Jevons in 1875; standard in every economics textbook today.
How we know
A definition rather than a discovery: it holds by agreement among economists, and matches how people actually abandon failing currencies.
Debates and risks
Whether all three jobs are needed, or one is fundamental, is argued; debates over crypto often turn on this test.
▸The barter myth vs. credit origins of money reframes the origins of What money is: a shared, transferable claimExperts disagree
The connection
If money grew out of barter, it is a thing: a handy commodity. If it grew out of credit, it is a social record of who owes what. The credit view fits modern money, which is mostly bank IOUs, and so reframes what money is.
When and why
Smith's story in 1776; challenged by Alfred Mitchell-Innes (1913), Caroline Humphrey (1985) and David Graeber (2011).
How solid is the link?
Fieldwork and ancient records show credit appearing early; the Bank of England's 2014 paper on money creation describes modern money as mostly bank IOUs.
Debates and risks
Many economists say the barter story was always a teaching simplification and the debate is overstated; others think it changes economics itself.
▸Cryptocurrency tests the definition of What money is: a shared, transferable claimExperts disagree
The connection
Money is usually defined by three jobs: medium of exchange, unit of account and store of value. Most crypto struggles at all three: few prices are quoted in bitcoin, its value swings sharply, and fees can be high. Stablecoins do better only by borrowing the dollar's unit. Crypto thus asks: is money whatever people accept, or what a state backs?
When and why
The debate began with bitcoin in 2009. El Salvador made bitcoin legal tender in 2021, the biggest real test, then dropped the requirement in 2025 under an IMF deal.
How solid is the link?
A 2022 NBER study found most Salvadorans stopped using the government's bitcoin wallet after spending its $30 sign-up bonus; few merchants anywhere price goods in crypto.
Debates and risks
Whether a token with no issuer can ever work as everyday money, or will stay a speculative asset, perhaps 'digital gold', remains unresolved.
▸What money is: a shared, transferable claim is mostly created through How banks create money: lending and fractional reservesFact, law or data
The connection
If money is a transferable claim everyone accepts, a bank deposit qualifies, and most modern money is exactly that. Banks create those claims when they make loans, crediting borrowers' accounts. Paper currency is a small minority; the rest exists as entries on bank ledgers.
When and why
From goldsmiths' deposit receipts in 1600s London to today's deposit accounts; spelled out by the Bank of England in 2014.
How we know
Fed data show currency is about $2.4 trillion of M2's roughly $22 trillion in 2025; most of the rest is bank deposits.
Debates and risks
Whether bank deposits are truly money or only promises of money is an old debate, sharpened today by stablecoins and digital currencies.