How can money be defined?

It is very difficult to define money precisely which may cover all its functions. Various economists have defined money but no definition can be viewed as complete and appropriate. This led Prof Walker to say that money is what money does. But still some definition has to be worked out.

Money is anything which operates as a medium of exchange having general acceptability and legal sanction. This points out two important aspects of money namely

(i) Functional aspect of money

(ii) Legal aspect of money.

Therefore, money can be defined from two points of view namely –

(i) Functional point of view

(ii) Legal point of view.

Legal definition of money:

From legal point of view money means what the law says it. Thus money means legal tender. A legal tender has legal sanction. One has to accept legal tender in exchange of goods and services.

Legal tender is also called fiat money. Currency and promissory notes are legal tender. Legal tender may be limited as well as unlimited. Limited legal tender is one in which payments can be made upto a specified limit. On the other hand, unlimited legal tender is one in which payments can be made upto any extent.

Functional definition of money:

From functional point of view money means what money does. Therefore, a functional definition of money will include all things that perform the four functions that money does. As such money may be defined as anything which is a unit of value, which operates an medium of exchange and store of value and which is accepted for the settlement of debts.

Any definition which includes one or two functions of money cannot be considered as a complete definition of money.

According to Crowther money is anything that is generally acceptable as a means of exchange and at the same time acts as a measure of value. But it is not a complete definition.

Comprehensive definition of money:

Keeping into view various aspects of money detailed above, an accepted and complete definition of money can be worked out in the following words:

Money may be defined as ‘anything which is generally acceptable and has legal sanction as a medium of exchange, which acts as a measure and store of value and which is widely accepted for the settlement of all debts’.