Is Free Market Money Impossible?

I think that the answer is yes, but all it takes is a valid counter-example to change my mind.

More precisely, the contrasting question is :

Can the supply of money be increased in a pure free market economy?

First of all, the definition here of a pure free market economy is one in which all actions consist of voluntary exchanges, expected to be mutually beneficial.

The problem is that the creation of money is always a unilaterally beneficial exchange of one state for another. As soon as new money is created, it belongs to the creator, and makes all other holders of money worse off. Mises would call this an autistic exchange, where the impact of an action on anyone but the actor is of no concern.

As an example, if, under a gold money standard, I believe that I can dig up enough gold in my back yard to justify the time and effort expended, then I am likely to proceed with the excavation. If I find any gold at all and add it to my gold money balance, then the supply of gold money has been increased and all other holders of gold money have been made worse off to the extent that the increase in my gold money balance induces me to bid up the prices of any goods that I may wish to purchase. It is not relevant whether or not in retrospect the found gold was worth the trouble, as any amount found has increased the supply.

This seems to me to be the primary reason that gold has greatly increased in supply over history even though no benefit to society results from an increase in the supply of money. The benefit acrues to the producers, and no mutual benefit need exist.

Of course, the increase in gold also provides non-monetary benefits, but it is highly unlikely that the extent of gold production over history would have been nearly as great if gold had not been utilized as a medium of exchange. If gold were just another industrial metal like present day copper, its extraction would involve mutually beneficial exchanges. The raw metal would be transferred to its buyers and it would never find its way into the money balances of miners or prospectors. It would result in lower prices for goods produced with gold, but not higher prices in general as long as they aren't converted into gold money.

Speaking of conversion, that is just as effective as mining in increasing the supply of gold money. If I convert a piece of gold jewelry into gold and add it to my money balance, the supply of gold money has increased. In fact, it is the mere decision to do so that is effective. If my mental acccounts include the gold that is contained in a piece of gold jewelry, then my willingness to part with a given gold money price of a prospective purchase is increased just as if my actual gold money balance were appropriately larger.

Setting aside gold, money is always created for the benefit of anyone with the ability to produce it or have it produced. The benefit may be indirect, as with a mafia boss contracting with a counterfeiter to produce FRNs, but it is the mafia boss whose money balance has increased in the end. The fact that a mutually beneficial exchange between the mafia boss and the actual counterfeiter has taken place does not mean that the creation of money is not an autistic exchange for the benefit of only the boss. If the counterfeiter retains some of the counterfeits, then that is a separate autistic exchange for his own cash balance benefit.

The government is just another counterfeiter of money. Its officials are the beneficiaries of money creation, with a combination of financial and political benefits, as the distribution of new money is under political control. The friends and associates of politicians generally benefit, but most people are injured to the extent that their money balances are reduced in purchasing power.

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You are ignoring the fact

You are ignoring the fact that gold has value for things other than exchange. Society may not benefit from an increase in the supply of money, but it certainly benefits from an increase in the supply of gold, because that means the cost relative to other goods and services of repurposing gold to make jewelry or electronic connectors goes down.

Since your definition of "a

Since your definition of "a pure free market economy" essentially assumes away the existence of any externalities (pecuniary or otherwise), I'd say that's what's impossible.

Does scrip not

Does scrip not count?

http://www.ptotoday.com/0301scrip.html
http://www.jgpress.com/inbusiness/archives/_free/000636.html

Sean, You are ignoring the

Sean,

You are ignoring the fact that gold has value for things other than exchange. Society may not benefit from an increase in the supply of money, but it certainly benefits from an increase in the supply of gold, because that means the cost relative to other goods and services of repurposing gold to make jewelry or electronic connectors goes down.

Actually, I thought I devoted quite a bit of content to non-monetary gold, especially as it contrasts with with monetary gold. While gold could never have become money without first having non-monetary uses, monetary gold doesn't depend on the continued existence of any non-monetary uses. As I at least hinted, monetary gold is the result of autistic exchanges, non-monetary gold is the result of voluntary, mutually beneficial exchanges and the possible later conversion of non-monetary gold to monetary gold is an autistic exchange.

Regards, Don

Matt, Since your definition

Matt,

Since your definition of “a pure free market economy” essentially assumes away the existence of any externalities (pecuniary or otherwise), I’d say that’s what’s impossible.

Exactly! But the real question is whether my definition is consistent with common (Austrian) usage. If externalities were an accepted approach, then the supply of new money would be a negative externality.

Regards, Don

Jim, Does scrip not count? I

Jim,

Does scrip not count?

I would assume that the creation of new scrip would tend to reduce the purchasing power of the existing scrip in which case we still have an autistic exchange.

Regards, Don

I have a few ideas, but the

I have a few ideas, but the new Dr. Who is on, so it'll have to wait.

Seems quite possible to me,

Seems quite possible to me, if you consider buying into a currency to be a form of investment.

Private banks could offer alternative currencies, and people could buy into ones they thought were stable. I think that you underestimate the value of this for the people buying into a currency--having stable money to facilitate trade is just about the most important economic thing you can get ahold of. If you had several banks competing to create the most stable currencies...

...well, it's an interesting idea, anyway. Probably too chaotic, in the end.

Don, I think your definition

Don,

I think your definition of "pure free market economy" is too narrow.

If I am an aspiring American Idol and I practice on my karaoke machine every night (speaking strictly hypothetically, of course), I am making all other Idol wannabes worse off by enhancing my skills. Under your definition, I would be taking actions that are unwanted by my future competitors, thus doing something outside the free market.

Rather than defining a "pure free market economy" as "all actions are voluntary exchanges", a better definition would be "all exchanges are voluntary". Then autistic "exchanges" would be part of the free market. It seems wrong to define actions not involving interactions with others as part of a "market".

Adam, actually there's a

Adam, actually there's a pretty respectable school of thought on free-banking that calls for just that. Uncle Fritz was the insightful pioneer here as in many things, but others like Lawrence White, Kevin Dowd, and George Selgin have fleshed the idea out more completely. I find it very attractive and quite workable.

Don's problem on the other hand, like most "Austrian" conundrums, is one of definitions. Of course an increase in the money supply is going to impose a negative externality on someone, in much the same way a sudden increase in the supply of diamonds would impose a negative (pecuniary) externality on the De Beers cartel. But this in itself is not a problem, and indeed is a perfectly normal part of regular market activity. So it's his definition (and by extension the "Austrian" one, if he's represented it properly) that's off kilter.

(As an aside, I really don't like the notions of "Austrian" and "Chicago" schools. Like Milton said, "there is no Austrian economics, only good and bad economics.")

Whoops, too slow. What

Whoops, too slow. What Jonathan said.

Matt, ... Of course an

Matt,

... Of course an increase in the money supply is going to impose a negative externality on someone, in much the same way a sudden increase in the supply of diamonds would impose a negative (pecuniary) externality on the De Beers cartel. But this in itself is not a problem, and indeed is a perfectly normal part of regular market activity....

The difference is that an increase in consumer goods or the resources for producing them benefits consumers as a whole and only injures competing suppliers. An increase in the supply of money has no overall benefits to society and just produces a change in the money prices of goods and a loss in the purchasing power of the pre-existing holders of money.

Regards, Don

Jonathan, ...Let us now

Jonathan,

...Let us now consider exchanges on the free market. Such an exchange is voluntarily undertaken by both parties. Therefore, the very fact that an exchange takes place demonstrates that both parties benefit (or more strictly, expect to benefit) from the exchange. The fact that both parties chose the exchange demonstrates that they both benefit. The free market is the name
for the array of all the voluntary exchanges that take place in the world. Since every exchange demonstrates a unanimity of benefit for both parties concerned, we must conclude that the free market benefits all its participants. In other words, welfare economics can make the statement that the free market increases social utility, while still keeping to the framework
of the Unanimity Rule....,

from :

http://www.mises.org/rothbard/toward.pdf

Toward a Reconstruction
of Utility and Welfare Economics
by Murray N. Rothbard

Agree or disagree?

Regards, Don

Don, As I at least hinted,

Don,

As I at least hinted, monetary gold is the result of autistic exchanges, non-monetary gold is the result of voluntary, mutually beneficial exchanges and the possible later conversion of non-monetary gold to monetary gold is an autistic exchange.

Actually, I don't think this is the case. Someone can mine gold for their own use as jewelry, in which case it is an autistic exchange. However, someone *cannot* use gold as money without exchanging it with someone else, regardless of whether they mined it themselves. Adding gold to the world merely changes the value of gold relative to other goods and services. It slightly harms people who are holding lots of gold, and it slightly helps people who are holding other stuff and want gold. It's a net positive because there is now more gold available.

You know, upon further

You know, upon further reading, I am taking back everything I said and just going with what Jonathan said.

To answer Don's original

To answer Don's original question: Yes, the money supply can be increased in a free-market economy. Obviously. If you dig up more gold and spend it, and the economy is using gold for money, then the money-supply has increased. Yet this does not mean free-market money is impossible. The supply of Fed-money also increases, yet fed-money is "possible". :)

A separate question would be whether or not a free-market in money would be superior to the current de jure monopoly possessed by the Federal Reserve. The answer is yes. Morally it is better since it doesn't involve the coercion of government. Economically it is superior since the competition among banks would put a ceiling on credit expansion, and there would be no central monopoly to counterfeit freely and extol favors at will. The impact of a few prospectors finding some extra gold lying around in their yards pales in comparison to the inflation and credit expansion of the current regime. And if people eventually figure out how to replicate gold exactly like on "Star Trek", I'm reasonably confident a physical substitute for gold could be devised. :roll:

I don't understand how

I don't understand how producing gold can be said to make other gold owners worse off in any meaningful sense. Yes, increasing the supply reduces the value of gold relative other goods, but that's true for any product. If I start making cars, the increased supply would presumably reduce the value of all the cars available. Does my productivity make other car owners 'worse off'?

Sean and Srefan, It appears

Sean and Srefan,

It appears that you may both be under the misunderstanding that the services that money provides begin and end with spending.

Money has diffenent significances to the economy as a whole and to the individuals that hold it.

For the economy as a whole the ability to price all goods in terms of a common unit and the ability to permit exchanges without having to simultaneously have goods available which satisfy both parties to the exchange are priceless.

For an individual, OTOH, the economic scarcity value of money is derived from the fact that every concrete unit of
money is always owned by a single someone for every instant in time. While the number of transactions that can in theory be enabled by any given amount of money is unlimited, as actual transactions take zero time, the value of the monetary unit is the result of the tension between the total amount of money available and the demand of all individuals to hold it, given a supply of goods that can or will be able to be purchased with money.

Regards, Don

Stormy, I don’t understand

Stormy,

I don’t understand how producing gold can be said to make other gold owners worse off in any meaningful sense. Yes, increasing the supply reduces the value of gold relative other goods, but that’s true for any product. If I start making cars, the increased supply would presumably reduce the value of all the cars available. Does my productivity make other car owners ‘worse off’?

What you're missing is that the economic values of goods have two major sources of value. The two sources are subjective use-value and exchange value. At any given time one of these two may be greater for a given individual than the other. The greater value at that time is its economic value for that individual.

If I start making refrigerators, the exchange value of the existing refridgerators in dealer showrooms is reduced, hurting the dealers but helping the consumers in the market for a refridgerator. However, the refridgerators owned by consumers in their homes are not affected, as their economic value is one of subjective use-value. We know that the consumers' subjective use-value is greater than their exchange value as long as they do not try to sell or trade them on the used market.

Regards, Don

For the economy as a whole

For the economy as a whole the ability to price all goods in terms of a common unit and the ability to permit exchanges without having to simultaneously have goods available which satisfy both parties to the exchange are priceless.

As I understand it these two features define why money is even used at all, and why individuals are the ones who use it. Having a common unit of pricing lets individuals tally up their revenue and cost and determine if they are making a profit or a loss (if I sell a pound of butter but buy a sack of nails, what is my "gain", etc). And solving the double-coincidence problem lets more complex exchanges take place, making the individuals engaging in trade better off.

the value of the monetary unit is the result of the tension between the total amount of money available and the demand of all individuals to hold it, given a supply of goods that can or will be able to be purchased with money.

Yes, money (or more precisely money-commodities) is also something that consumers might want to use gold for, beyond the fact that it looks shiny. I'm not sure I see how the "tension" arising from demand for money-commodities makes you think that a free-market in money will malfunction somehow. Could you be more specific? Would you also agree with the statement that a free-market in money would be better than the current regime, and if so are you suggesting both systems are similarly flawed?

If I start making refrigerators, the exchange value of the existing refridgerators in dealer showrooms is reduced, hurting the dealers but helping the consumers in the market for a refridgerator. However, the refridgerators owned by consumers in their homes are not affected, as their economic value is one of subjective use-value. We know that the consumers’ subjective use-value is greater than their exchange value as long as they do not try to sell or trade them on the used market.

I'm not sure but something smells fishy here. For one thing, I think it's a distortion to say I am "hurting" other people by building refridgerators. And even if I am in some relevant sense, it seems that this could potentially change their subjective use-value. I mean, if I make a really cool transparent-door refridgerator, and people go for it, hasn't that changed the "subjective use-value" of the market? Or are you making a different point?

Stefan, Yes, money (or more

Stefan,

Yes, money (or more precisely money-commodities) is also something that consumers might want to use gold for, beyond the fact that it looks shiny. ...

Everything (I think) that I've said applies to all money, whether commodity or not. If I start making money in my basement without effective limit, then cost will be no object for me and I will bid up the prices of all goods that I buy for myself or as gifts for others.

I’m not sure I see how the “tension” arising from demand for money-commodities makes you think that a free-market in money will malfunction somehow. Could you be more specific? Would you also agree with the statement that a free-market in money would be better than the current regime, and if so are you suggesting both systems are similarly flawed?

All forms of money will share the same characteristic, that an increased supply will tend to increase the money prices of goods as individuals experience the diminishing marginal utility of the monetary unit as the quantity of money that they possess increases. This will mean that anyone who doesn't participate in the increased supply of money will see their purchasing power decrease as the prices of goods are bid up.

What differentiates one form of money from another is the incentive for the individuals or institutions that have the capability to produce new money to actually do so. For an unextracted commodity money, the limitation on production is its profitability. For a government, the limitation is how much monetary supply inflation they can get away before endangering their chance of re-election. For a government, neither paper money nor stored gold present a profitability constraint as the cost of extracting gold is a sunk cost.

Regards, Don

Stefan, I’m not sure but

Stefan,

I’m not sure but something smells fishy here. For one thing, I think it’s a distortion to say I am “hurting” other people by building refridgerators. And even if I am in some relevant sense, it seems that this could potentially change their subjective use-value. I mean, if I make a really cool transparent-door refridgerator, and people go for it, hasn’t that changed the “subjective use-value” of the market? Or are you making a different point?

I didn't try to say what you think I said.

If you build refridgerators you will negatively impact competitors by increasing supply. Potential refridgerator buyers will be better off because of the competition and lower prices.

The market doesn't have a subjective-use value, only the owners and users of specific refridgerators do. If my refridgerator satisfies me by keeping food cool, making ice cubes and not using too much electricity, then your making refridgerators will not bother me. You could conceivably make a new refridgerator that I like so much that I would try to trade in my refridgerator for its exchange value in order to buy one of yours, but this would be a positive, not a negative.

Regards, Don

All forms of money will

All forms of money will share the same characteristic, that an increased supply will tend to increase the money prices of goods as individuals experience the diminishing marginal utility of the monetary unit as the quantity of money that they possess increases. This will mean that anyone who doesn’t participate in the increased supply of money will see their purchasing power decrease as the prices of goods are bid up.

That's certainly true.

What differentiates one form of money from another is the incentive for the individuals or institutions that have the capability to produce new money to actually do so. For an unextracted commodity money, the limitation on production is its profitability. For a government, the limitation is how much monetary supply inflation they can get away before endangering their chance of re-election.

The wikipedia article was not very specific, but seemed to indicate that gold deposits are becoming scarcer and more difficult to mine. The important thing I would focus on here is the fact you said about the limit of production; in a free economy it's much more random and unpredictable than under the Federal Reserve system, which is a feature, not a bug. Given this basic distinction I don't see how even a large number of gold deposits would pose much of a long-term problem for a free market. :end:

Stefan, The wikipedia

Stefan,

The wikipedia article was not very specific, but seemed to indicate that gold deposits are becoming scarcer and more difficult to mine. The important thing I would focus on here is the fact you said about the limit of production; in a free economy it’s much more random and unpredictable than under the Federal Reserve system, which is a feature, not a bug. Given this basic distinction I don’t see how even a large number of gold deposits would pose much of a long-term problem for a free market.

The difficulty of mining is part of the question of profitability.

But my original point really has nothing to do with the superiority of one form of money over another.

It is my claim that an addition to the supply of money cannot be the result of a voluntary, mutually beneficial exchange. Stating it this way avoids the question of the definition of a free market.

This is what I need a counter-example for.

Regards, Don

An increase in the supply of

An increase in the supply of money has no overall benefits to society and just produces a change in the money prices of goods and a loss in the purchasing power of the pre-existing holders of money.

I think that this misses out on a much more complex interaction where monetary policies are concerned.

One of the big problems during the Great Depression was a monetary shortage--the Fed was pursuing a policy of deflation at a time when runs on the bank were leaving a lot of people without money at all. If they had increased the supply of money during this time, it would have been to everyone's benefit.

The "benefit" of any given monetary policy is, as with any benefit, a situational affair.

It is my claim that an

It is my claim that an addition to the supply of money cannot be the result of a voluntary, mutually beneficial exchange. Stating it this way avoids the question of the definition of a free market.

Doesn't a bank increase the money supply by lending? The depositor still has money in his account, but the bank has lent it to someone else. Two people now have the ability to spend the 'same' money, so the money supply has increased, and the loan was presumably a voluntary, mutually beneficial exchange.

Adam, One of the big

Adam,

One of the big problems during the Great Depression was a monetary shortage–the Fed was pursuing a policy of deflation at a time when runs on the bank were leaving a lot of people without money at all. If they had increased the supply of money during this time, it would have been to everyone’s benefit.

Ignoring the question of historical accuracy, this would not be an example of a beneficial increase in the money supply, but rather just a bandaid over the collapse of the fractional reserve banking system.

Regards, Don

Doug, The actual creation of

Doug,

The actual creation of money comes from the ability of the bank to operate under a fractional reserve system. The loan is indistinguishable from a loan of actual money which involved no creation. Thus creation is a unilateral action of the bank.

Regards, Don

Ignoring the question of

Ignoring the question of historical accuracy

Hey, don't look at me, ask these guys. They don't all agree, but I think there's plenty of evidence there for what I'm talking about.

this would not be an example of a beneficial increase in the money supply, but rather just a bandaid over the collapse of the fractional reserve banking system.

Could you elaborate?

Adam, Could you elaborate?

Adam,

Could you elaborate?

Fractional reserve banks are effectively insolvent almost from the start and bank runs are the entirely rational response to that fact when depositors start to realize that the bank has no chance of paying off even a majority of its depositors.

Regards, Don

Fractional reserve banks are

Fractional reserve banks are effectively insolvent almost from the start and bank runs are the entirely rational response to that fact when depositors start to realize that the bank has no chance of paying off even a majority of its depositors.

Ah. But wouldn't facilitating the lending of money to these banks on a large scale have eased the situation somewhat?

It is my claim that an

It is my claim that an addition to the supply of money cannot be the result of a voluntary, mutually beneficial exchange. Stating it this way avoids the question of the definition of a free market.

Hmm, two points immediately come to mind: 1) Even if it cannot, I've already pointed out it's not a practical problem for a gold-backed currency anyway, so the question doesn't seem that significant to me, and 2) what if people actually want fractional reserve banking? Maybe one bank serves a large town with a free market and everyone rationally comes to the conclusion that fractional reserve banking is more efficient, so everyone joins the bank, thus implicitly endorsing its inflationary lending. It looks like "voluntary, beneficial exchange" to me. Market forces of course would put a check on the amount of inflation it would engage in. And as long as every customer understands that under some circumstances they may not be allowed to get their money back (e.g. if there is a large bank run) then the FRB system of such a town wouldn't be fraudulent either.

It is not the act of

It is not the act of printing FRNs or digging up gold that creates money. It is the intial exchange that puts the metal or notes into circulation that creates it, and said exchange is generally both voluntary and mutually beneficial. I would be perfectly happy to be the initial recipient of newly printed FRNs. In fact, I'd be ecstatic, because I would receive a higher price for my goods than any of the later recipients.

Stefan, Hmm, two points

Stefan,

Hmm, two points immediately come to mind: 1) Even if it cannot, I’ve already pointed out it’s not a practical problem for a gold-backed currency anyway, so the question doesn’t seem that significant to me,...

That is fine, but my interest is not a question of practicality, but of logical validity. The assumption of mutual voluntary exchange for the supply of money seems to lead to invalid conclusions about money. In particular, the historical increase in the supply of gold money is likely better explained by unilateral motives and incentives as opposed to mutual voluntary exchanges.

Regards, Don

Don, Would you do a slow

Don,

Would you do a slow fellow a favor and, given the current dialog, re-ask your question(s)?

Sean, It is not the act of

Sean,

It is not the act of printing FRNs or digging up gold that creates money. It is the intial exchange that puts the metal or notes into circulation that creates it, and said exchange is generally both voluntary and mutually beneficial.

By your logic, a two ton boulder suspended above your head would be of no significance because it is stationary.

By definition money is universally accepted and is the common unit of goods prices. All of the interesting characteristics of money flow from its holding in cash balances, especially in the cash balances of individuals. Circulation is a concept that has no significance except for wear and tear.

Regards, Don

Cornelius, Would you do a

Cornelius,

Would you do a slow fellow a favor and, given the current dialog, re-ask your question(s)?

Not a favor, but an exchange for your timely information on Dr. Who. I'd never watched before and was able to DVR both hours. Surprisingly entertaining.

BASIC QUESTION =

I claim that the supply of money cannot be increased by mutual voluntary exchange, but that it is always increased through unilateral autistic exchange. Can you provide a counter-example?

Note that money is not just a physical or electronic item, but that money depends on the intent of its owner.

Regards, Don

Don, I claim that the supply

Don,

I claim that the supply of money cannot be increased by mutual voluntary exchange, but that it is always increased through unilateral autistic exchange. Can you provide a counter-example?

Perhaps I'm misapprehending your intent, but is it not the case that all goods are essentially brought into being (i.e., supplied) via autistic exchange? We create them by autistically exchanging our leisure time, etc., to produce a good that either directly satisfy our wants, or that we hope can be exchanged for some other good. Perhaps providing an example of something whose supply is not created via autistic exchange would provide something of which to counter.

Cornelius, Perhaps I’m

Cornelius,

Perhaps I’m misapprehending your intent, but is it not the case that all goods are essentially brought into being (i.e., supplied) via autistic exchange? We create them by autistically exchanging our leisure time, etc., to produce a good that either directly satisfy our wants, or that we hope can be exchanged for some other good. Perhaps providing an example of something whose supply is not created via autistic exchange would provide something of which to counter.

Your point is well taken. I think we have to proceed one step further upstream to see the difference.

If money is gold, it is clear what my motivation is for digging it up and adding it to my cash balance if it is expected to be worth the trouble.

OTOH, there will be no point in my digging up copper if there is not expected to be someone who will be willing to make a voluntary mutual exchange with me for it, presumably to use in the manufacture of some valuable consumer or production good. Normally I would expect to be paid with money for the copper, enough to make the digging worth while.

It makes little sense to dig up gold, add it to my cash balance, and then expect to sell it for money, as exchanging money for money under these conditions produces no benefits for either party.

Regards, Don

Don, I think the answer

Don,

I think the answer lies in your last post.

If money is gold, it is clear what my motivation is for digging it up and adding it to my cash balance if it is expected to be worth the trouble.

This is precisely the behavior with all indirect production. My motivation for writing code isn't to add it to my computer, but to trade it -- directly or indirectly, sooner or later -- for something that will satisfy my wants. I think the "flaw" in our general understanding of money is to give it too much separate character from other goods. Why money is demanded as such should not change the economic analysis anymore than why people demand other goods. Wertfreiheit über allen?

It is all pointless without

It is all pointless without repeal of legal tender laws. Let the individual players decide what money is.

Cornelius, I think the

Cornelius,

I think the “flaw” in our general understanding of money is to give it too much separate character from other goods....

I'm not so sure. Money is unique in that an increase in the supply of an established and existing money is of no social benefit.

If George Bush introduced a space program with the sole purpose of beating the Chinese to asteroidal gold, all his advisors would question is the polling results and how the gold can be made to appear in his campaign fund.

Regards, Don

Don, I’m not so sure.

Don,

I’m not so sure. Money is unique in that an increase in the supply of an established and existing money is of no social benefit.

Our concept of the good we call money may be distinct from other goods, but I am wary of using "social benefit" as a criteria. If anything, the primary distinction of money is that it is a good which is almost never consumed, in the "first-order good" sense of the word.

Most of the following is just my thinking out loud.

What if we just consider it as a higher-order good? As a factor of production? Money may be used as a store of value and a unit of account, but those features can be fulfilled by other means. The primary "money-ness" stems from its demand as a medium of exchange. The ability of money to facilitate trade is no less a factor than, say, transportation. Railroads are not consumed in the sense that their quantity diminishes, but they are utilized to the exclusion of other uses. So it is with money. If I build a railroad, I may "buy" goods indirectly with my freight capacity, just like I may buy good with money. Likewise, holders of railroads are diminished.

What then moderates the supply of transportation but the supply and demand schedules for it? So too would it be with money. The price of money in terms of all other goods would, in a free market, equilibrate to the marginal cost of producing the money.

Thoughts?

Cornelius, What if we just

Cornelius,

What if we just consider it as a higher-order good? As a factor of production? Money may be used as a store of value and a unit of account, but those features can be fulfilled by other means. The primary “money-ness” stems from its demand as a medium of exchange....

I'm not sympathetic to this view.

The market price of a factor of production tends to its discounted marginal value product in its least valued actual use.

The market value of the monetary unit, OTOH, is primarily set by the consumer holders of money balancing marginal present specific consumption against the potential for future general consumption.

I would claim that the value of money is virtually entirely controlled by the demand by individuals to hold money for its exchange value. The other benefits of money such as a unit of price and a medium of exchange, are overall benefits for the economy, and do not require sacrifices for the individual to realize these benefits. The costs of these benefits can likely be thought of as sunk costs.

Regards, Don

Considering that money is a

Considering that money is a development of the free market, I laugh at the title of the post....

Considering that money is a

Considering that money is a development of the free market, I laugh at the title of the post….

Did you read the content of the post?

Is free market money

Is free market money impossible?
Don Lloyd says yes. The problem is that the creation of money is always a unilaterally beneficial exchange of one state for another. As soon as new money is created, it belongs to the creator, and makes all other holders of money worse off. Mises would...

Don, Money is not a store of

Don,

Money is not a store of value nor is it a unit of account. Money is an exchange medium. Money was created by the free market, that is, the system of subjectively beneficial mutual exchanges. Money is a service provided to the market with a demand and a supply. It is the artificial, prolonged expansion of the supply of money that causes distortions.

Scarce money made of metal that is dense and chemically inert will naturally see expansion as demand for it naturally increases with expansion of the population of participants. Scarce money by definition cannot experience an exponential rate of expansion. Fiat money, OTOH, can. This also explains Gresham's law of money replacement. In a market where more than one commodity serves as money, the more easily expanded, less scarce kind will displace the less easily expanded, more scarce kind.

The creation or the expansion of the supply of a kind of money cannot be exclusively beneficial to any one party in the market unless that one party holds a governmentally enforceable monopoly. This is why the Federal government pursues inflationary policies rooted in the fiat currency known as the Federal Reserve Note, even though the US dollar is still defined as a given weight and fineness of gold.

If you think that the Fed wasn't inflationary during the Depression, I have a bridge to sell to you :). There would never have been bank runs and failures had the banking system been fully reserved (that is, lending demand deposits is prohibited). The combination of punitive tax policy, trade policy, and monetary policy caused and prolonged the Depression. Had President Hoover followed Coolidge's policies (as well as President Franklin Roosevelt following him who simply expanded Hoover's policies) the Great Depression would never have been so disastrous even with the Federal Reserve.

Charles, The creation or the

Charles,

The creation or the expansion of the supply of a kind of money cannot be exclusively beneficial to any one party in the market unless that one party holds a governmentally enforceable monopoly...

But my claim is that the additional creation of an established and existing money is UNIVERSALLY beneficial to EVERY party who has the means to do so in an economic manner. For the supply of money to not be augmented by autistic (non-interpersonal) exchange, it is required that NO individual or entity perceives that he can benefit by creating himself new money, even if this benefit may prove in retrospect to have been erroneous.

Regards, Don