JP Koning has a interesting post discussing the extent to which modern economies are “pure monetary exchange” economies. His key point is that money is not homogeneous thing:
In Canada we have the $1 dollar coin, or the loony, which is issued by the Royal Canadian Mint. If you try using loonies to pay for something worth over $100, say a washing machine, there’s a good chance that you’ll be turned away by the shopkeeper. To buy the washing machine, you’ll first have to barter your loonies for larger-denomination paper dollars. Banks typically engage in this sort of barter. They’ll either sell you paper dollars for your coins, or they’ll sell you an electronic bank deposit. If you buy the paper dollars you can head back to the store and get the washing machine.
JP concludes that since you are exchanging one fiduciary media for another that we are halfway between a pure barter economy (JP’s definition is autarky) and a pure monetary economy (a single exchange media transacted universally).
I would argue that an important step off the half-way point and toward pure monetary exchange was severing convertibility of exchange media into a fixed (basket of) commodity(ies). I have argued elsewhere on this blog that we have passed a point where money is too homogeneous an asset. I take JP’s point that exchanging one fiduciary media for another is technically barter…but my main push back is that in a modern economy (i.e. in the US and Canada), it would be under only extraordinary circumstances that one would want for exchanging their $100 paper note for 100 dollar coins. I think that is important because it shields people from having to think about how they are going to transact. Very few — if any — people go out to WalMart and think, “I wonder if they accept coins, paper, or electrons? And where am I going to get electrons?!”* That is an important part of “moneyness”.
No doubt that JP would say that is simply due to what we call “money” offering a very high level of liquidity services, and that there should be no distinction. I’m not disagreeing with JP, but I think we’re further along the continuum.
*Certainly some of this still exists in a marginal way; for instance you may need cash to transact at certain stubborn ethnic restaurants, soda machines, or at a laundromat.