Money: Difference between revisions
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People wishing to achieve their ends often have to [[trade]]. They can exchange their [[good]]s ''directly'', if they have matching preferences and suitable goods, or ''indirectly'', with the help of another good, the | People wishing to achieve their ends often have to [[trade]]. They can exchange their [[good]]s ''directly'', if they have matching preferences and suitable goods, or ''indirectly'', with the help of another good, the ''medium of exchange''. | ||
A commonly used medium of exchange is called '''money'''. | A commonly used medium of exchange is called '''money'''. | ||
==Medium of exchange and money== | ==Medium of exchange and money== | ||
Jones can trade an apple against two eggs from Brown. But this direct exchange or [[Trade#Direct Exchange|barter]] limits the number of exchanges and the extent of social cooperation. Both must have a direct personal need for the goods of the other person and the goods must be easily divided. Using another, marketable good between the traded and desired goods and services helps to reduce some of the problems. | |||
A commodity that comes into general use as a medium of exchange is | : Indirect exchange means, "''if, between the commodities and services, that are the ultimate end of exchanging, are one or several media of exchange.''"<ref name="Goods">Ludwig von Mises. [http://mises.org/humanaction/chap17sec1.asp "1. Media of Exchange and Money "], ''Chapter XVII. Indirect exchange'', [[Wikipedia:Human Action|Human Action]], referenced 2009-04-27.</ref> | ||
A commodity that comes into general use as a medium of exchange is money. The concept of a "medium of exchange" is precise. But at which point comes a medium of exchange into "common" or "general" use is not strictly definable, and whether or not a medium is a money can be decided only by historical inquiry and the judgment of the historian. However, for purposes of simplification, and since there is a great tendency on the market for a medium of exchange to become money, we shall refer to the media of exchange as moneys.<ref name="Rothbard_medium"> [http://mises.org/rothbard/mes/chap3a.asp#2._Emergence_of_Indirect "2. The Emergence of Indirect Exchange"] Chapter 3-The Pattern of indirect exchange, ''[[Man, Economy and State]]'', online edition, referenced 2009-05-05.</ref> | |||
==Origin and properties== | ==Origin and properties== | ||
In the history of mankind, a great variety of commodities — cattle, shells, nails, tobacco, cotton, copper, silver, gold, and so on—have been used as media of exchange. In the most developed societies, the precious metals have eventually been preferred to all other goods because their physical characteristics (scarcity, durability, divisibility, distinct look and sound, homogeneity through space and time, malleability, and beauty) make them particularly suitable to serve in this function.<ref name="Hulsmann_medium">Jörg Guido Hülsmann. [http://www.mises.org/books/moneyproduction.pdf "The Ethics of Money Production"], 2. The origin and nature of Money, p.22, referenced 2009-05-08</ref> | |||
For a good to become money, it must have the physical properties and be considered valuable by itself. The price of a good, when employed only for nonmonetary purposes, is a good starting point to estimate its price for use as a money. Should the good stop being money, it will still have value due its other uses.<ref name="Hulsmann_money">Jörg Guido Hülsmann. [http://www.mises.org/books/moneyproduction.pdf "The Ethics of Money Production"], 2. The origin and nature of Money, p.23, referenced 2009-05-08</ref> | |||
==Types== | ==Types== | ||
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===Natural money=== | ===Natural money=== | ||
The emergence of money happens through a gradual process, in the course of which more and more market participants, each for himself, decide to use one commodity rather than others in their indirect exchanges. Thus the historical selection of gold, silver, and copper was not made through some sort of a social contract or convention. Rather, it resulted from the spontaneous convergence of many individual choices, a convergence that was prompted through the objective physical characteristics of the precious metals.<ref name="Hulsmann_money" /> | |||
===Fiat money=== | ===Fiat money=== | ||
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... | ... | ||
==References== | |||
<references /> | <references /> | ||
Revision as of 11:15, 8 May 2009
People wishing to achieve their ends often have to trade. They can exchange their goods directly, if they have matching preferences and suitable goods, or indirectly, with the help of another good, the medium of exchange.
A commonly used medium of exchange is called money.
Medium of exchange and money
Jones can trade an apple against two eggs from Brown. But this direct exchange or barter limits the number of exchanges and the extent of social cooperation. Both must have a direct personal need for the goods of the other person and the goods must be easily divided. Using another, marketable good between the traded and desired goods and services helps to reduce some of the problems.
- Indirect exchange means, "if, between the commodities and services, that are the ultimate end of exchanging, are one or several media of exchange."[1]
A commodity that comes into general use as a medium of exchange is money. The concept of a "medium of exchange" is precise. But at which point comes a medium of exchange into "common" or "general" use is not strictly definable, and whether or not a medium is a money can be decided only by historical inquiry and the judgment of the historian. However, for purposes of simplification, and since there is a great tendency on the market for a medium of exchange to become money, we shall refer to the media of exchange as moneys.[2]
Origin and properties
In the history of mankind, a great variety of commodities — cattle, shells, nails, tobacco, cotton, copper, silver, gold, and so on—have been used as media of exchange. In the most developed societies, the precious metals have eventually been preferred to all other goods because their physical characteristics (scarcity, durability, divisibility, distinct look and sound, homogeneity through space and time, malleability, and beauty) make them particularly suitable to serve in this function.[3]
For a good to become money, it must have the physical properties and be considered valuable by itself. The price of a good, when employed only for nonmonetary purposes, is a good starting point to estimate its price for use as a money. Should the good stop being money, it will still have value due its other uses.[4]
Types
Commodity money
Natural money
The emergence of money happens through a gradual process, in the course of which more and more market participants, each for himself, decide to use one commodity rather than others in their indirect exchanges. Thus the historical selection of gold, silver, and copper was not made through some sort of a social contract or convention. Rather, it resulted from the spontaneous convergence of many individual choices, a convergence that was prompted through the objective physical characteristics of the precious metals.[4]
Fiat money
...
References
- ↑ Ludwig von Mises. "1. Media of Exchange and Money ", Chapter XVII. Indirect exchange, Human Action, referenced 2009-04-27.
- ↑ "2. The Emergence of Indirect Exchange" Chapter 3-The Pattern of indirect exchange, Man, Economy and State, online edition, referenced 2009-05-05.
- ↑ Jörg Guido Hülsmann. "The Ethics of Money Production", 2. The origin and nature of Money, p.22, referenced 2009-05-08
- ↑ 4.0 4.1 Jörg Guido Hülsmann. "The Ethics of Money Production", 2. The origin and nature of Money, p.23, referenced 2009-05-08