What Makes Good Money?

By now you’ve seen that humans have tried many things as money — cattle, shells, salt, gold, paper, and digits on a screen. Some worked better than others. But what’s the actual standard? How do you judge whether something is good money or bad money?

Six properties. Think of them as a checklist.

Durability: does it last? Salt dissolves. Paper burns. Gold survives centuries.

Portability: can you carry it easily? A cow is worth a lot but try putting it in your pocket. Gold coins were a revolution in portability.

Divisibility: can you make change? You can split a gold bar into coins. You can’t split a cow in half and have two half-cows.

Fungibility: is every unit identical? One dollar bill is worth the same as any other dollar bill. One barrel of crude oil is roughly equivalent to another. But a handmade painting is unique — not fungible.

Scarcity: is the supply limited? This is what protects value. If something can be created endlessly, it can’t store value. The moment supply is unlimited, the price collapses.

Acceptability: do people trust and accept it? Even perfect money fails if nobody will take it.

Here’s what’s interesting: run any form of money through this test and patterns emerge. Gold scores high on most. Paper money scores high on portability and acceptability — but fails on scarcity, because governments can always print more.

Keep this checklist in mind. In a few weeks, we’ll run Bitcoin through it.

Tomorrow: your first week in review — what you now know that most people don’t.