Introduction

Economists have long recognized the various benefits of a monetary economy, but much argument remains over the origin of money, its exact functions, and the proper institutional arrangements for its supply. One fundamental question concerns the relative roles of the individual, social interaction, and the state in defining and maintaining a monetary order. The evolutionary nature of spontaneous-order approaches forces us to examine not just monetary institutions but the very origins of money. As actors acquire and use money balances, a demand for storage facilities arises. This demand leads to the evolution of banking and the creation and use of bank liabilities as money substitutes as well as to other financial innovations. The inspiration for the specific approach of this study derives from the renewed interest among monetary economists in the theory and history of free banking. The chapter also presents an overview of the key concepts discussed in this book.