What Makes Good Money?

You've now seen a lot of things used as money — cows, shells, salt, gold, paper, numbers on a screen. Some worked better than others. But how do we actually judge them? What makes money good or bad?

There are six things to check. Think of it as a checklist.

Does it last? Salt melts and paper burns, but gold survives for centuries.

Is it easy to carry? A cow is worth a lot, but you can't put one in your pocket. Gold coins, on the other hand, were easy to carry.

Can you split it? You can cut gold into small coins. You can't cut a cow in half and get two smaller cows.

Is every piece the same? One dollar is worth the same as any other dollar. A painting is one of a kind — no two are equal.

Is it limited? This is the one that protects value. If something can be made without limit, it can't hold value. When there's too much of it, the price falls.

Will people accept it? Even perfect money is useless if no one will take it.

Run any money through this list. Gold scores high on almost all six. Paper money is easy to carry and widely accepted — but it fails on one point: it isn't limited. Governments can always print more.

Keep this checklist in mind. In a few weeks, we'll run Bitcoin through the very same six.

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