Mosler: seminar

["William B. Ryan" <william_b_ryan@xxxxxxxxxxx>]

>From David Glasner, ~Free Banking and Monetary Reform, 1989, pages 4-6:

"...Why would people accept something that provides them no direct
benefit in exchange for intrinsically useful commodities unless a prior
agreement or edict assured them that everyone else would also accept the
object in exchange?

"The was first provided by the nineteenth-century economist Carl
Menger...Menger's explanation follows directly from the insight that
even in a premonetary economy with no single generally accepted medium
of exchange, some commodities would still be more easily marketable than
others.

"What do I mean by saying that some commodities are more marketable than
others?  All commodities are marketable in some degree, since one can
always buy or sell a commodity in an instant if one will pay a high
enough, or take a low enough, price for it.  'Marketability' therefore
refers to the spread between the prices at which any commodity can be
bought or sold at any moment.  That gap is known as the 'bid-ask
spread.'  Ordinarily, a seller will obtain a higher price and a buyer
will find a lower price by waiting or searching for additional offers
rather than agreeing to the first offer made...

"For some commodities, though, the bid-ask spread is narrower, and
converges to the equilibrium value faster, than for others...The bid-ask
spread for a thousand bushels of winter wheat on the Chicago Board of
Trade is obviously narrower and converges faster...than the bid-ask
spread for, say, the Empire State Building.  No one, I daresay, would
deny that a thousand bushels of wheat are more marketable than the
Empire State Building.

"What characteristics make one commodity more marketable than another?
Obviously, marketability is related to the number of potential buyers
and sellers of a commodity and to how easily they can communicate with
each other.  The better communication is between the potential buyers
and sellers of a given commodity, the more marketable that commodity is.
Similarly, the more potential suppliers and demanders there are, the
cheaper transportability and storability are, and the easier
divisibility is, the greater the marketability of a commodity will be...

"When some people began to realize the advantages of holding extra
stocks of easily marketable commodities, two consequences followed.
First, observing the success of their more alert and innovative
neighbors, others began adding to their stocks of these commodities.
Second, as more people began trading them, the commodities became even
more marketable, so that the incentive to increase holdings of them kept
growing...

"Money, therefore, did not originate in a deliberate decision taken at a
particular moment by a single individual or by an entire community.  It
emerged as the unintended consequence of a multitude of individual
decisions.  What concerned people was the relative marketability of
various commodities, the relative costs of trading them, and the
relative costs of holding inventories of those commodities.

"In primitive societies passing from a nomadic economy to agriculture,
domestic animals seem to have served as money.  They had a variety of
uses, were demanded by almost everyone, were not too expensive to
transport, were durable stores of value, and so long as cattle could be
kept out of doors and land was freely available, were not too costly to
hold.  Even after precious metals displaced cattle as money, a remnant
of earlier moneys was often preserved by stamping the image of an animal
on minted coins.  The origins of money are also evidenced in our
language.  The word 'pecuniary' is derived from the Latin ~pecu~, which
means 'cattle.'

"Whenever it became less costly to use and hold one potential medium of
exchange than the others, the desire to minimize costs led to a switch
in the commodity serving as money..."

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