4-13 Microbes maketh man

http://www.economist.com/printedition/2012-08-18

Free exchange

On the origin of specie

Theories on where money comes from say something about where the dollar and euro will go

I have been to Myanmar in July. It was surprising that I can use dollar almost anywhere in the country. Myanmar’s currency is kyat but all the people know the rate and can accept the foreign currency. In Japan we cannot buy things in dollar, or rather we buy dollars.  

Discussion: Why is the dollar accepted in outside of America?

           Should the Yen aim at “the international currency”?

Summary:

Origin of money is mystery. (1) Does it have its root in the power of state or (2) a purely private matter? This is long running debate.

*3 functions of money: medium of exchange / a store of value / a unit of account => Lots of things can do these jobs

(1) The origin of money is a market led response to barter (物々交換)cost.

Karl Menger, an Austrian economist (1840-1921)

Monetization of an economy starts when agricultural communities move away from substance farming and start to specialize when trade with others becomes necessary. Money evolves to reduce barter cost, with things working better than others. Spices and shells can be used as money.

(2) The state plays a bigger role in the origin of money

Charles Goodheart, a professor of LSE (1936-)

Metals are used as money because they are durable, divisible and portable but raw metals are hard to assess the value so there is another reason why metals are used as money. Metal money has circulated as coins. Minting(鋳造) developed not as a private sector attempt but government operation. It means the state plays a bigger role in the origin of money. The fiscal wing of government has a huge incentive to move its economy away from barter because it needs to measure income and expenditure to set taxes.

Dollar and euro

The columnist suggests that only “informal” monies can spring up purely privately. And he points out that a good example of “informal” money is the dollar that is used in outside of America. Because of informality, the shift from dollar to Yuen or other currencies is swifter than many assume. He explains the euro has a deeper problem because it lacks a foundation in the power of ether market or the state.