The Theory of Money

[Draggingtree]

Ludwig von Mises Institute:

 

The Theory of Money

 

Mises Daily:Friday, August 31, 2012 by Percy L. Greaves, Jr.

 

[Understanding the Dollar Crisis (1973)]

 

The subject of this fifth lecture is the theory of money and its value.

Money is the most important commodity in a market economy. A sum of money is at least one side of every market transaction. Sums of money are both sides of many transactions. In all transactions involving annuities, life insurance, bank accounts, bond buying, and other loans of money, a sum of money is on each side of each transaction. Therefore, anything that affects the value of money affects every market transaction. The value of money affects not only the transactions of the moment but also all transactions over periods of time.

The Function of Money

The role of money is to make trade easier. Without money, there would be the awkwardness of barter. The use of money leaves more time for production and helps to boost the number of transactions which are expected to increase the satisfaction of each participant. Its use thus permits the increased division of labor and mass production for mass consumption. Money helps men to help others as they help themselves. Money might, therefore, be called a catalyst for the Golden Rule. A sound and simple monetary system is probably the greatest material tool available to men for the multiplication of human satisfactions.

In the earliest days of voluntary social cooperation, one man probably hunted while another fished or picked fruit. Then, they exchanged some of the products