Gary North, one
of the most prolific libertarian authors ever, began a series of articles
yesterday called What
is Money? His first installment was exceptionally
clear and tightly-written.
Drawing on Mises' 1912 work, The Theory of Money and Credit,
North says money can be defined in six words:
money is the most
marketable commodity. [Mises] had in mind gold and silver coins, but his
theory encompassed any commodity that can or has served as money in history.
Property rights are the foundation of money, Mises argued. Property rights
provide the legal setting for voluntary exchange. He argued that the
development of money was an unplanned outcome of the decisions of individuals
who sought to increase their wealth by increasing their productivity. . .
What had originally been a commodity valued for some other characteristic
increasingly was valued for the purpose of facilitating exchange. In other
words, this commodity became money. . .
[G]overnments began to extend their control over money because they
recognized that they could increase their extraction of wealth from private
citizens with greater efficiency if they taxed people's monetary income
rather than taxing their individual output. . . It was not that the state was
the origin of money; it was that money became a tool of the expansion of the
regarding monetary theory and practice has several aspects. First, there is
conceptual confusion. There is a lack of understanding of how the free market
works. The two fundamental rules governing free-market pricing are these:
1. Supply and demand
2. High bid wins
When you apply these two principles to any area of the economy, you have the
conceptual tools necessary to understand the basics of economic causation.
All deviations from free-market economic theory invariably involve the abandonment
of one or both of these two principles of economic analysis. This certainly
applies in the area of monetary theory and monetary policy.
eagerly await the balance of North's series. I wonder if one of Ben
Bernanke's lieutenants will read it.
George F. Smith
Read his book : The
Flight of the Barbarous Relic
Visit his website
Read his blog
George F. Smith is the author of The Flight of the
Barbarous Relic, a novel about a renegade Fed chairman and the editor of