The nature and the true origin of money
Introduction The mainstream theory of the origin of money encompasses a broad spectrum of views. In all their different variations, the theories are paradoxical. A glance beneath the surface of orthodoxy reveals many contradictions. The correctness of the hypothesis in all its variations can be disputed on two grounds. The theory is not tenable. It can neither be supported by observable facts nor does it confirm what it is meant to prove. None of the theoretical attempts have so far touched the core difficulty that is so pivotal to the actual misconception of the origin of money. Many of the most eminent economists have grappled with the subject but their efforts have come to no avail. They all tacitly assume a deep-rooted fallacy about the origin of money. Most theories concentrate on the flawed idea that is solely related to the difficulties of the barter exchange system. A fitting example of this theory is the one that was initially formulated by Aristotle. It should be kept in mind that this theory has remained the definitive formulation of virtually all economics textbooks. This is the idea behind the unending orthodoxy that also contains the innermost error of the theory. Here it must suffice to say that it is one of the oldest descriptions of the origin of money – a theory that has been accepted unreservedly for well over two millennia. Such is the power of the assertion that its very idiom has been accepted as a conclusive truth. The supposition has received ceaseless consideration that it simply does not merit. The present chapter aims to trace the fallacy of the chief explanations provided for the origin of money. We shall reveal the limitations of these interpretations and show that the arguments given are for the most part inconsistent. The evidence of the practice is either inconclusive or irrelevant. In this book we have managed to draw attention to nine descriptions of the origin of money. They are, of course, not totally exclusive. As a body of the same theory, they are intertwined and closely interrelated. The distinctive feature of each, however, is the emphasis that each puts on the specific point as being the ultimate source of the origin of money. Among these explanations of the origin of money we have: the division of labour and production of surplus products; the act of exchange; indirect exchange, i.e. the exchange not in kind but against a medium; the exchange
against the most marketable good; money originating from its functions; the state created money; and, finally, the difficulties associated with the barter economy. Each of these explanations of the origin of money will be individually examined in this chapter. It will be shown that each explanation on its own does not sufficiently depict an accurate account of the origin of money. Each may act as a contributory cause but not as the only cause of the origin of money. Individually each contributory cause is necessary in the chain of events but not a sufficient factor responsible for the genesis of money. Even though each explanation can reveal some truth about the origin of money it remains short of the whole truth. Each explanation, nevertheless, adds an angle, but not a complete geometrical configuration of the whole theory. Not only that, the standard explanations given thus far both individually and in their combination lack the full, satisfactory description of the origin of money. For this reason we will in this chapter first highlight the limitation of each explanation and then move to the overall shortcoming of the combined explanations. As various authors and economics textbooks lay more emphasis on one or a combination of the explanations cited above, they inevitably encounter contradictions in their account of the origin of money. The subject of the origin of money is a topic that is perceived as being knowable and detectable and unknowable and undetectable at once. As expected, such statements add nothing to our understanding of the subject. More to the point, we rarely find an author who is content with any of the explanations given for the origin of money. Most authors find a loophole in the explanation but they are unable to home in on the actual problem. In the first place an explanation based on a single factor is too narrow and incomplete. If it was combined with other explanations it would be more complete but not yet an accurate description of the actual theory that can be confirmed. Either way, they all ultimately come to the same conclusion. They all boil down to one explanation of the origin of money. That is that money is a medium of exchange which originated in order to remove the principal drawbacks of the direct exchange. The chief difficulty of the barter exchange economy is recognized as lack of coincidence of wants. There is only one way that this problem can be removed and that is when a generally accepted medium of exchange is introduced. Therefore, this chapter will begin with an overview of the general contention about the mainstream explanation of the origin of money. We will then proceed from there to highlight the key failings of the suggested explanations of the origin of money that have been covered in the preceding chapters of this book. In the final section of this chapter we will propose a more accurate explanation of the origin of money that is in line both with historical evidence and the sufficient and necessary deductive reasoning required for corroboration of a scientific theory.