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Blockchain/Level I · Money/1.1 What money is/Lesson 2

The properties of good money

What makes one good more saleable than another

MaterialsA coin and a banknoteA calculatorA public block explorer

Wonder

  1. Why does one good become money while others stay goods?
  2. Which matters more for money: being useful, or being hard to produce?
  3. What would a new good need in order to compete with gold?

Explore

  1. Carl Menger’s “On the Origins of Money” (1892) treats money as the most saleable good: the one that can be sold quickly, in any quantity, close to its full value. Traders accept it not because they want it but because others will. Each person who adopts it makes it more useful to the next, so markets tend to converge on one or two monies rather than many.
  2. Jevons (1875) listed qualities that suit a good to the role, among them portability, indestructibility, homogeneity, divisibility, stability of value and cognizability (being easy to recognize and verify). Modern treatments compress these into durability, portability, divisibility, fungibility, verifiability and scarcity. Each removes a cost: spoilage, transport, making change, telling units apart, detecting fakes, and losing value to new supply.
  3. Scarcity most often decides the contest, and it means something specific: not rarity but resistance to new production. Stock-to-flow measures it as existing supply divided by new annual supply. Mines add roughly 1.5–2% to the above-ground gold stock each year, and almost all gold ever mined still exists, so even a sharp rise in price barely changes total supply.
  4. When a good serves as money, its price rises above its value in ordinary use. That excess is a monetary premium. If producers can cheaply make more of the good, they do, and the new supply erodes the premium until the good stops working as money. Saifedean Ammous’s The Bitcoin Standard (2018) reads monetary history through this pattern; the next lesson gives the cases.
  5. Bitcoin was designed against the same checklist. Consensus rules cap supply just under 21 million coins; issuance halves every 210,000 blocks; each coin divides into 100,000,000 satoshis; and every full node checks every coin’s history, so counterfeits are rejected before they circulate. Its weak points lie elsewhere: price volatility, a short track record, and acceptance that is still growing.
  6. The schedule can be checked by hand. The block subsidy began at 50 BTC and has been 3.125 BTC since the April 2024 halving. Multiply each era’s subsidy by 210,000 and sum the series: it converges just below 21 million. A national currency has no equivalent calculation, because its future supply depends on decisions not yet made.

Key facts

  • Menger (1892): money is the most saleable good, accepted because others accept it.
  • Jevons (1875) listed portability, indestructibility, homogeneity, divisibility, stability of value and cognizability among money’s qualities.
  • Stock-to-flow = existing stock ÷ annual new supply; gold mine output adds roughly 1.5–2% to the above-ground stock each year.
  • A monetary premium is value above a good’s non-monetary use; cheap new supply erodes it.
  • Bitcoin’s supply is capped just under 21,000,000 BTC; 1 BTC = 100,000,000 satoshis.
  • The subsidy started at 50 BTC and halves every 210,000 blocks; it has been 3.125 BTC since April 2024.

Exercise nine, six, three, one

9CollectList 9 things that have served as money somewhere, in any era. Include at least two from the last hundred years.
6ClusterRate each against the six properties, then group them into 6 clusters by their weakest property.
3DistillChoose the 3 properties that best predict which monies lasted longest, and back each with an example.
1CrystallizeWrite 1 sentence defining good money in terms of what it costs to produce more of it.

Fact check

Dates, figures and claims checked against the published sources listed below.

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