The Future of Everything

April 5, 2015

What exactly is money?

Filed under: Economics, World Finance column — Tags: — David @ 9:30 pm

Money shapes our lives, yet we rarely reflect on where it came from

According to the authors Lipsey and Ragan of Canadian textbook Economics, money emerged as a replacement for barter: “If there were no money, goods would have to be exchanged by barter… The major difficulty with barter is that each transaction requires a double coincidence of wants… The use of money as a medium of exchange solves this problem.”

Fortunately the book was free, so in this case neither barter nor money were required. The authors went on: “All sorts of commodities have been used as money at one time or another, but gold and silver proved to have great advantages… The invention of coinage eliminated the need to weigh the metal at each transaction, but it created an important role for an authority, usually a monarch, who made the coins and affixed his or her seal, guaranteeing the amount of precious metal that the coin contained.”

This seemed clear enough. Commodity money emerged from barter. The best commodities, for various reasons, were gold and silver. The only role of government was to come along at the end and put its stamp on the coins. I had seen the same argument made before, with minor variations, by 19th-century economists such as William Stanley Jevons and Carl Menger, and by Adam Smith in the 18th century. But to check it out, I decided to go right to the source, the origin of origin stories: the philosopher himself.

Read the rest of the article at World Finance.

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