The Making of Money

In different places all over the world, the idea of a medium of exchange grew. People noticed that some goods were easier to trade than others. And people also noticed that these more goods that were easier to trade had similar properties.  They were durable, they were easily divisible into larger or smaller amounts, they were comparatively scarce as procuring them required effort, they were homogeneous as every item of the commodity was exactly like every other item, and they were convenient. It was easy to carry enough around to made trades for other commodities.

Over time a shorter and shorter list of commodities passed all these tests. These select commodities began to exhibit a sixth property, all important in the evolution of money.

This short list of commodities, most of them metals, had one thing in common with all other commodities. They were useful and commanded an exchange value in their own right. But because they were easier to trade than any other goods, they came to be perceived as having a value over and above their basic utility. They came to have a value as a most good that was very easy to trade. They came to have a value as a MEDIUM OF EXCHANGE.

Once this value became widely recognized, the commodity in question was no longer consumed for anything but the most vital purposes. Instead, it was used in exchange. It had become a MONEY.

intrinsic (adj.) Of or relating to the essential nature of a thing, inherent.

There is no such thing as intrinsic value in economics. Value does not reside in the atoms, molecules, chemical composition, or structure of an economic good. It always resides in the mind of the individual seeing the good. When looking to acquire an economic good, an individual must decide how much time, or effort, or other economic goods he or she is willing to offer in exchange. That decision determines the value of that economic good, at that particular time, to that unique individual.  i.e. Is it worth one day of work for that dress?  If I buy the family size package then I am only giving up one hour of work for dinner.

This is a crucial difference. Value is not in what is beheld, it is in the eye and mind of the beholder. The reason why some goods become money while most others do not has nothing to do with the intrinsic value of the goods. It is because a large number of individuals have realized that goods used as money have a unique usefulness. Unlike all other goods, they can be exchanged easily, and at any time, for anything.