Did Money Evolve? You Might (Not) Be Surprised


Naked Capitalism has this fabulous article Did Money Evolve? You Might (Not) Be Surprised. If Ron or Rand Paul would read this and understand it, it would blow their minds. Now that is something I would pay “money” to see.

This conflation of “money” with currency-like financial securities reveals a basic misunderstanding of money that pervades the economics profession. That misunderstanding is based on a fairly tale.

In the golden days of yore, it is told, all exchange was barter. Think: Adam Smith’s imagined bucolic butcher and baker village. This worked fine, except that your milk wasn’t necessarily ready and to hand when my corn came ripe. And moving all those physical commodities around was arduous. This inserted large quantities of sand and mud into the gears and wheels of trade.

But then some innovator came up with a great invention — physical currency! Coins. “Money.” This invention launched humanity forward into its manifest destiny of friction-free exchange and the glories of market capitalism.

Except, that’s not how it happened. No known economy was ever based on barter. And coins were a very late arrival.

Later on in the article, the author posits this definition.

At this point you’re probably drumming your fingers impatiently: “So give: what is money?” Here, a bloodless and technical term-of-art definition:

The value of assets, as designated in a unit of account.

Ironically, one thing that even this article misses is the slipperyness of the concept of “value”. Some times the unit of account is given its “value” by the assets it will buy. In times of inflation and deflation, the “value” of the unit of account changes drastically. So it is rather circular to say that the value of assets is designated by the unit of account whose value is designated by the amount of assets it represents. In truth, there is no such think as a constant that represents value.

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