The most common definition of money is a three-part functional description: money serves as a unit of account, a medium of exchange, and a store of value.
Unit of account refers to the numerical metric used to assign values or prices to things. In this sense a dollar is like an inch.
A medium of exchange is an intermediate that facilitates economic transactions. It may be physical coins and currency, or it may be entries in a bookkeeping system.
Being a store of value simply means that money may be held for a period of time without losing its value. It can be accumulated and used for future transactions.
All of these functions are derived from a conceptual framework of exchange or barter between autonomous individuals or entities as the way in which limited resources are allocated in a society. The point of assigning a numerical value to something is to establish its value relative to other things being exchanged. Using money eliminates the need for direct exchange of goods. If I have a boat and need a car, I don’t have to find someone who has a car and needs a boat. All I have to do is find someone who has a car he is willing to sell because he wants to use the money to buy something else.
Perhaps a more useful way to describe money is as purchasing power in the form of cash or credit. Cash is purchasing power I have accrued because of things I have done. Credit is purchasing power I have because of things I am promising to do. If I purchase something with credit, I may not actually have the cash to pay for it, but I am promising that I shall at some time in the future.
Nothing about these descriptions necessarily implies that money itself should be a tradable commodity or that it should “grow.” There is also nothing about how money is created, although most theoretical discussions of money will invoke an anthropological myth about the evolution of money from primitive barter. Moreover there are other ways of allocating scarce resources in a society, some of which may not require the use of money. What money is or how it functions is a matter of social convention, even if it appears to have evolved over centuries. It is a way of implementing the rules by which we live together and by which we determine who gets what. We may believe that there is a God-given, inalienable right to life, liberty and the pursuit of happiness, but adults in our society by and large have to “earn a living” by engaging in economic transactions involving money.
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