What Is Money?

One of our favorite questions from readers for Economics in Plain English was deceptively simple: What, after all, is money? And what sets it apart from something that's simply valuable? A big abstract idea like this called for a hands-on experiment.

In this episode, business editor Derek Thompson pays a visit to a branch of EagleBank in Arlington, VA, to bother the world's friendliest bank teller with a series of dumb requests. As goofy as it seems, this little experiment is a helpful way to illustrate three essential functions of money: a store of value, a unit of account, and a medium of exchange. But you'll have to watch to see why.

[Joe-jcol]

It's not just faith. The government literally forces you to use its currency while you are taking up residence in it or visiting it. The currency of one country is useless inside another country. It's not because people have more or less faith in it, but because the state forces you and makes it inconvenient for you to use any other currency. So it is less about faith in the money and more about the faith in the country itself.

[jessieplexer]

A very nice, simple and engaging overview of money in the broadest sense!

[slothrop]

But WHY do people have faith in a currency? Because they KNOW that all citizens of the country must pay their tax obligations in the same currency. Money didn't just pop up in nature like mango trees: it was created by states. Yes, it is a unit of account, but it's also a reminder of the state's power to impose taxes. That's why (old) coins have a number on one side and the head of the monarch on the other.

[jennykim]

This was a creative way to access the concept of money. I really loved watcing your video!

[liamprendergast]

How did he get his hair like that though?

[jrblackify]

Cute video, but I think it misses the central idea: money (as in fiat currency) is a promise by a government and if that government fails, so does their currency.

[quiquers]

Were is the beautiful DCEA´s people!!!?

[dmv]

I hope you washed your hippo and hands. Seeing you be all handsy with that bank counter got me nervous.