Properties of Good Money

Not all objects can function effectively as money. Throughout history, a natural selection process has eliminated inferior forms of money while elevating those with superior characteristics. Five essential properties determine whether an object can serve as sound money.

The Five Properties

1. Durability

Durability measures money's ability to withstand time and use without deterioration. Money must retain its physical integrity across repeated transactions and long-term storage. Gold exemplifies this property - it neither corrodes, tarnishes, nor decays. In contrast, perishable commodities like cattle or grain fail as durable stores of value.

2. Divisibility

Divisibility refers to money's capacity to split into smaller denominations without losing proportional value. This property enables transactions of varying sizes. Coins can be subdivided or minted in different weights. Bitcoin achieves extreme divisibility through satoshis. Indivisible items like diamonds fail this requirement.

3. Portability

Portability describes the ease of transporting money relative to its value. High-value items with low weight and volume make superior money. Gold concentrates significant purchasing power in small, transportable units. Large, heavy commodities like stone wheels or iron bars prove impractical for everyday exchange.

4. Recognizability

Recognizability means money must be easily and reliably authenticated. Users must distinguish genuine money from counterfeits without specialized expertise. Standardized coins with consistent weight and purity serve this function. Complex verification requirements undermine money's utility as a medium of exchange.

5. Scarcity

Scarcity is perhaps the most critical property. Money must have limited supply resistant to arbitrary expansion. This constraint preserves money's function as a store of value. Natural scarcity protects gold; programmatic scarcity protects Bitcoin. Fiat currency fails catastrophically here due to unlimited government printing.

Comparative Analysis

Different forms of money throughout history have scored variably across these five dimensions. Gold excels in all five properties, explaining its millennia-long dominance. Fiat currency succeeds in portability and divisibility but fails critically in scarcity. Bitcoin represents an attempt to match or exceed gold across all five properties using cryptographic technology.

The interplay of these properties determines which forms of money survive market competition and which disappear. Poor money drives out good money in circulation (Gresham's Law), but sound money ultimately prevails as a store of value.