Randy comments: Just because its an electronic blip or a piece of green paper rather than a lump of metal, doesn’t mean it is not money. Money is a store of value: $1000 in the bank will give you at least $1000 next year (and you might have gotten interest too). If it were not a store of value, it wouldn’t function as money (money which became worthless instantly would never be accepted.)
Randy has caught enough Keynesian theory to have lost his grasp on the classic definitions. First, $1,000 in the bank will not give you the same value as $1,000 next year, because inflation and interest tax will reduce it to less than $974 of what you could have bought previously. Second, “store of value” refers to inherent value. Ask Europeans holding lira or Deutsch marks printed only three years ago just how much value they’ve stored. Stone, metal and land will all have value one thousand years from now; a green piece of paper will not.
The fact that you might be willing to accept an I.O.U. from me does not make it money. Nor does the fact that most people will accept pieces of paper or electrons in exchange for goods and services at this point in time require modifying the economic definition of money.
Randy also misses the point of the hedonic error. Computers being faster does not make one inherently more productive or the economy larger. If you use your 3 Ghz machine to write the same emails and surf the same web sites as your old 486/100, it is bizarre to declare that you are 30x more productive. Technological advancement is glorious and necessary, to be sure, but it is not synonymous with economic growth or productivity despite the statistician’s attempts to equate them.
Is it appropriate to factor this into quality of life? Absolutely. In the price index? No way, especially not when goods that can’t be interpreted hedonically, such as real estate, have been sky-rocketing in line with the activity of the printing presses.