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mhy729 (30.23)

August 2011



money as medium of exchange vs store of value

August 23, 2011 – Comments (20)

I've been thinking about the use/purpose of money, and it seems that many agree that it is both a medium of exchange and a store of value.  Our modern economies seem to rely on the free flow of money for smooth and proper functioning, which fulfills the 'medium of exchange' part.  However, the store of value part presents a problem if a significant portion of money isn't circulated through the system (i.e. hoarding).  I do find myself agreeing with many parts of Austrian economics that argue against fractional-reserve banking and the leveraging of money, and also their contention that such and other monetary policies lead to boom/bust cycles.  The challenge I see is in having too much money saved in full-reserve demand deposits.  Even if this were "properly" implemented, which would necessitate safekeeping fees instead of our current "free" "demand deposits", a hoarding problem would exist if too high a fraction of the money supply is kept from circulation in this way.  This is why I am starting to think that maybe the 'medium of exchange' function of money is paramount, and the 'store of value' function secondary in importance.  Sure perhaps it is necessary to have it as a short-term store of value for convenience sake, but for long-term it would seem to be potentially extremely counterproductive.  [more]

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