Saturday, September 13, 2008

give me ur moneys

Consider another invention, one so deeply embedded in our daily lives that we seldom think of it as an invention at all: money. It was a creation not of an individual but of the free market. And while money was once exclusively a material object, it is today increasingly abstract.

Human beings are, uniquely, trading animals. Trade has allowed both individuals and entire countries to specialize in what they are good at or have in abundance, selling the surplus to acquire what they lacked. Trade allows us to exploit what economists call “comparative advantage.” Because both parties to a transaction value what they receive more than what they trade away, wealth is created. And nothing has facilitated trade more—thus fostering the enrichment of the world—than the invention of money. (…)

Without money, people who want to trade what they have for something else they want must barter with someone with a complementary interest. If a man has apples and wants oranges, he must find a person who has oranges and wants apples. Economists, with their usual talent for turning an unmemorable phrase, call this a “double coincidence of want.”

But barter only works effectively when the number of goods being traded is limited. When humans in Neolithic times abandoned hunting and gathering in favor of agriculture, they settled down in one place for long periods and began developing ever more technologies (including pottery and beer fermentation). As the number of potential trade goods increased rapidly, the burden of finding the “double coincidence of want” increased exponentially, too.

As trade increased, the need for a means of comparing the value of different commodities also grew. (…) Slowly, people began to talk about the value of all goods in terms of one standard good, usually an item of high value.

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