This is based on a comment I made here
Money is a transaction good: it is used to do transactions. Hence, an economy with three goods (output, money and assets) has two markets. The output market and the asset market with money as the good used in transactions in either (and so both) markets. And anything that can be used as a transaction good is money.
Since money is something used for transactions, we accept payment in money because we can use it in future transactions. It is a store of value in that sense, but, as Nick Rowe explains, a peculiar one. For its value is purely due to its potential use in future transactions.
Which is why fiat money is money in its purest form. It is not "distorted" money or "false" money or "perverted" money: it is money in its purest form for it has no value apart from its value in transactions.
Which leads to lots of interesting questions. Those about what determines the value of money in transactions (how much one gets, or pays for, what) and what determines the range of transactions money in general (or a specific money) is used for. These are related questions, but not the same question. And the ambit question is not only why US$ works in Red Square (even in the days of the Soviet Union) but why there are a whole lot of transactions we engage in which are so personal that using money would be inappropriate.
25 Years Later, Is It Still the Hayek Century? - Originally posted on Mostly Economics: Hayek died 25 years ago on 23 March 1992. David Boaz of Cato Institue pays a tribute: Hayek lived long enough to see...
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