Fed up with charges from the right that the Federal Reserve is tempting inflation by printing money, New York Times columnist Paul Krugman poses a fundamental question: what is money, after all?

Money, Krugman explain is not "pieces of green paper bearing portraits of dead presidents," since a) "a lot of those pieces of green paper are pretty much inert--sitting outside the United States, in the hoards of drug dealers and such" and b) "checking accounts are clearly a close substitute for cash in hand."

Krugman concludes:

The truth is that these days--with credit cards, electronic money, repo, and more all serving the purpose of medium of exchange--it's not clear that any single number deserves to be called 'the' money supply. Intellectually, this isn't a problem; nor is there necessarily a problem maintaining monetary policy even if there isn't any single thing you're willing to call money...

But if you're determined to view economic affairs through a sort of paleo-monetarist lens, focused on the evils of 'printing money,' you're going to have a hard time in the modern world, where the definition of money is increasingly vague.

Krugman's explanation is not the only one, of course. Just last week, NPR's Planet Money attempted to answer the very same question by venturing to Yap, a small island in the Pacific Ocean where, for centuries, money came in the form of massive stone discs.

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Uri Friedman