HOW MONEY BEGINS

Before examining what money is, we must deal with the
importance of money, and, before we can do that, we have to
understand how money arose. As Ludwig von Mises conclusively
demonstrated in 1912, money does not and cannot originate by
order of the State or by some sort of social contract agreed upon
by all citizens; it must always originate in the processes of the free
market.

Before coinage, there was barter. Goods were produced by
those who were good at it, and their surpluses were exchanged
for the products of others. Every product had its barter price in
terms of all other products, and every person gained by exchanging
something he needed less for a product he needed more. The
voluntary market economy became a latticework of mutually beneficial
exchanges.

In barter, there were severe limitations on the scope of
exchange and therefore on production. In the first place, in order
to buy something he wanted, each person had to find a seller who
wanted precisely what he had available in exchange. In short, if
an egg dealer wanted to buy a pair of shoes, he had to find a shoemaker
who wanted, at that very moment, to buy eggs. Yet suppose
that the shoemaker was sated with eggs. How was the egg dealer
going to buy a pair of shoes? How could he be sure that he could
find a shoemaker who liked eggs?

Or, to put the question in its starkest terms , I make a living as
a professor of economics. If I wanted to buy a newspaper in a
world of barter, I would have to wander around and find a newsdealer
who wanted to hear, say, a 10-minute economics lecture
from me in exchange. Knowing economists, how likely would I
be to find an interested newsdealer?