3 - The Introduction of Gold and Silver as Money

Indirect Exchange

Over thousands of years of trial and error it has become clear that indirect exchange better facilitates commerce and the progression of society. Smith would be better off exchanging his plough for something else, which is divisible, say butter, which he can then divide up and sell on in exchange for the particular goods he seeks.

However, while an improvement, this is still a clumsy approach. After exchanging his plough for butter, Smith is in a predicament if nobody wants his butter. Smith also suffers the inconvenience of storing the butter in the meantime, and is exposed to the risk of it going bad before he can exchange it. The butter may be divisible, which solves part of his problem, but Smith retains the risk that there is no market for the butter – a lack of coincidence of wants.

Gold & Silver are Chosen as the General Media of Exchange - “Money”

For society to really leap forward its members require a commodity which is divisible into small units without loss of value, which is durable over long periods of time and is transportable over large distances. Throughout the ages, by trial and error and in competition with all other commodities, one or two commodities began to shine through as the preferred general media of exchange – those commodities are gold and silver – and these became referred to as “money”.

Gold & Silver = Money = A Commodity

Continuing with Rothbard’s explanation for a moment... “A most important truth about money now emerges from our discussion: money is a commodity. Learning this simple lesson is one of the world’s most important tasks. So often have people talked about money as something much more or less than this. Money is not an abstract unit of account, divorceable from a concrete good; it is not a useless token only good for exchanging; it is not a “claim on society”; it is not a guarantee of a fixed price level. It is simply a commodity. It differs from other commodities in being demanded mainly as a medium of exchange. But aside from this, it is a commodity.”

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