Academy Home | Student Dashboard

(econ 103) - essay unit 6: austrian economics i


What’s wrong?

Money is an indirect form of exchange. We use money because of the “Lack of Coincidence of Wants”. What I want, is something which I would like to exchange with what I already have. Money developed to encounter this problem as a solution. So, money developed as a commonly recognizable form of exchange. You can use it to further buy or produce things that you will consume in the future.

Simply Money is NOT a Social Construct, hard money is. Likewise, Soft money is a phenomenon of Social Destruction if it already exists. There are many points in this regard, let’s discuss all of them one by one:

  1. The usage of money itself is very old. Human beings used to exchange goods even before the start of Civilization. In Primitive In societies, people used to know each other very well. So, they used to have BARTER system. One person used to exchange what he desires with others on what he needs. This exchange used to be DIRECT like Oranges with Apples or Apples with Bananas.

  2. Another point is the exchange of wants between complete Strangers. Here money is not constructing a society. So, a mutually trusted thing or party will help the deal. Let’s look at an example:

Suppose there are two tribes. “TRIBE A” has a specialization in Rice Cultivation and every person in it helps in the production of rice.

Similarly, there is another tribe by the name of “TRIBE B”. They specialize in the farming of Wheat.

At one point in time, both tribes met somewhere and told each other about their work. At the end of the conversation, both tribes want to exchange rice and wheat. This is so both can benefit from the variety of food in the diet. Now to facilitate their trade, they either must use Barter or an Indirect medium of exchange. After few trade sessions, they will come to a standardized agreement on how to trade.

In the above example, two complete strangers are doing trade with money or barter. They are not building a society. They are using just a medium of Indirect or Direct (barter) exchange. And this medium needs to be Recognizable or Trustable money for both parties.

  1. After thousands of years of indirect exchange, human beings in Eurasia started using sound money like GOLD, SILVER coins. This was the advent of proper CIVILIZATION. As the people started to trust a common medium of exchange which was very durable, fairly transportable, and divisible up to a certain extent. This is where society started. That was the point where people started proper DIVISION of LABOUR. For example, If I decide to become POET of society, I need reliable money i.e., HARD MONEY which can be trusted on. So, I could do my poetry very well without thinking about the loss of my WEALTH if money proved to be soft/easy over time.

The summary is that Not everything can be money. Even if something is money, it doesn’t mean that it will help in the fabrication of society. It is only the hard and hardest money that spins the wheel of Civilization, faster and farthest.


What’s wrong?

Let’s start with a counterargument. Money can be a shared hallucination. So, If I support this argument, then I will say that whatever money is used, everybody agrees on it. Human Society agrees in general that this is their mode of exchange. And they can hallucinate over this. This helps in running the society very well.

So, let’s look at another side of things. Well, there are some fundamental problems with this statement:

  1. We human beings can’t hallucinate in larger numbers. Even if we do, we don’t produce common ideas out of it all the time. This is the reverse of human inventiveness because entrepreneurship arises when people think differently. Because a person who comes up with a solution of a big problem doesn’t think the same way as all other masses do. This is how he becomes an entrepreneur. Now take this discussion further into the second point.

  2. Throughout history, we have found ISOLATED tribes using different forms of money. When they got discovered, they were colonized because of the type of money they were using. There is a possibility that those people might choose a completely agreed-upon medium of exchange if given choices. But this highly depends on the scarcity of that specific money itself in that specific location. For example, in EGYPTIAN deserts, you might have WATER as money but in CANADA, this doesn’t work as Water is highly abundant here. So that means Egyptians and Canadians don’t hallucinate in the same way. So different demographics, the evolution of knowledge, challenges, and circumstances take societies on different paths.

  3. the Last point in this regard, is what history has told us until now. If you see the world from east to west and north to south before globalization, you will find that most of the societies were using different forms of money. Although there were some similarities like coinage eras in Roman Empire coincides with the use of the same coins in some other inter-connected places. But by and large, people were using their own monies like glass beads, rai stones, copper coins, silver coins, gold dinars, paper currency in China only, etc. So, the argument of “Collective Hallucination” falters here. As even people within Eurasia were not hallucinating commonly.

In summary, history tells us clearly that Money is a Social Contract rather than Shared Hallucination. Different people and societies have different interests over different times. These spark different choices of monies that they value. And because of those choices, societies had evolved over time. Those societies who were interconnected with other better technological societies adopted better monetary standards. This means that they sort of abandoned their own primitive form of money which they invented. People were being impoverished if a colonizer starts producing the same money elsewhere and dumping it within societies. This has even led to numerous colonisations in the past. Within the free market, sound money has always made its way in societies over thousands or hundreds of years. As sound money evolves in a Darwinian way of Natural Selection.

1 Like

Great point about the tribes trading wheat and rice with each other and showing how this doesn’t necessarily develop civilization in the same way having a common money to allow division of labour.

Also great point about how different civilizations would “hallucinate” differently because they would all value things differently based on their needs and circumstances, so it would be difficult to have everyone converge on the same money hallucination.

The only thing I would add to this argument is that ultimately the hallucinations of money fall apart because it is the physical properties of money rooted in the real world that determine what is a good money to use or not.

For example we could hallucinate using leaves as money, but that economy would collapse quickly because leaves are not scarce. You can pick up leaves easily, and everyone doing so would cause hyperinflation. However gold is scarce, and it’s difficult to copy or create, so it is a good form of money for long-term wealth storage. This scarcity attribute is rooted in the physical world. Therefore we cannot rely simply on hallucinations to determine a good form of money.