Money – Its Origin & Its Importance ECO 473 – Dr. Dennis Foster

Backstory – The “Austrian” School Menger (Principles of Economics) Böhm-Bawerk (Capital & Interest) Mises (Theory of Money & Credit; Human Action) Hayek (Individualism & Economic Order) (The Road to Serfdom) Rothbard (Man, Economy & State) (The Mystery of Banking)

The Origins of Money Arises in a market setting … – Direct exchange (barter) gives way to … – Indirect exchange Goods serve as mediums of exchange. When we settle down to one = money. – Characteristics: Portable, store of value, relatively scarce, divisible, widely used, easily recognized. If available, gold and silver.

Money solves problems … Double coincidence of wants Double coincidence of wants – Allows for specialization of labor. Indivisibilities Indivisibilities – Even with barter, discrete units may still be difficult. Calculation of profit and loss. Calculation of profit and loss. – Business formation is possible. – Division of labor  Economic growth  Rising living standards.

Is Money “Invented” by the State? No. No. – Even with the idea, it is difficult to image how a king could create the institution of money. – Governments have long been involved w/money. Minting (income=seignorage) & debasing. Issue unbacked claims to money – FR Notes. Supplant the market money – FR Notes. Note that money unit is some weight of … Note that money unit is some weight of … Pound sterling – a pound of silver. Dollar – an ounce of silver. POW camp & cigarettes as money.cigarettes

ECO 473 – Dr. Dennis Foster Money – Its Origin & Its Importance