This hit home with me as an electrical engineer who is constantly explaining things like electricity, physics, math, cryptograph (including Bitcoins) to my very inquisitive 5 year old.
It got me to thinking that hey, maybe I am not as well informed on this subject as I could be. After all I am an electrical engineer, not an economist.
I think what he is saying is that when you measure the money supply in order to measure, calculate and predict other things like inflation etc. you want to measure the "live" money and you really do not care about the "dead" money. The dead money is sitting there doing nothing for the economy at the moment. Isn’t the BTC economy actually a perfect case in point? If you look at all the BTC a lot (most?) of it is dead lifeless money sitting in accounts.
In fact here is what got me over to the "dark side": consider all the BTC that are sitting on public addresses where the owner has lost the private key. Should this money be counted in the money supply? I think the answer is obviously no. This money is truly dead and will always be. It will never contribute again. Now think of the money sitting in accounts that has been there since it was created and has never moved. We all know that all this money may someday contribute to the economy but it currently is not.
Again, I admit I don’t really know what I am talking about here but it seems to me that in the BTC economy removing money sitting in deposit accounts like Mt. Gox from the accounting of the money supply may not go far enough in this attempt to measure “live” versus “dead” money. In the BTC economy we would have to estimate and remove all the actual BTC that have been destroyed through lost public keys, or destroyed on purpose by sending them to addresses like http://firstbits.com/1bitcoin (what a shame, I wish they had sent them to me instead!) Also when calculating the money supply it seems to me you would also have to take into account and remove all the “early adopter money” that is not dead but is more like zombie money, it just sits there and sits there as long term savings/hoarding.
So my suggestion for the wiki is that we start out with a paragraph something like the original explanation that we all know and love and then add a second section that further refines the explanation taking these further distinctions of definition into account.