Mises’s regression theorem suggests that a good has to first have value outside of a medium of exchange before it can become a medium of exchange. Is there a minimum population size of people who value that good in order for it to become a medium of exchange?
Let’s say there is a rock collector. He collects any rocks that have a certain shape to them. No one else cares for these rocks but this one guy will trade food he grows for these rocks. Is it possible for these special rocks, which are only valued initially by one individual, to become a medium of exchange?
Could I not trade these special rocks to the tailor in exchange for cloths because the tailor knows he can use the rocks to purchase food? Would these rocks now be considered a medium of exchange?
http://mises.org/humanaction/chap17sec4.asp: First sentence:
As soon as an economic good is demanded not only by those who want to use it for consumption or production, but also by people who want to keep it as a medium of exchange and to give it away at need in a later act of exchange, the demand for it increases. A new employment for this good has emerged and creates an additional demand for it.
I’m guessing it’s 2 people.
Why 2 instead of 1 (as in the rock collector example)?
All actions are exchanges but money is a product of catallactic exchange, it doesn’t exist in an autistic exchange. There is no medium of exchange for the autistic actor, only want-satisfaction.
It’s definitely not one person, there is no indirect exchange. I am not too sure with two people, I will have to give it slightly more thought. And definitely three or more people would work because of indirect exchange (the tailor taking rocks from Person A so then he can exchange them for food from Person B).
If I know that the rock collector wants rocks I could go out and search for/mine/harvest rocks that he will like because I know I can trade them for food. In this case only the rock collector values the rocks outside of a medium of exchange but I now value them because they have exchange value for food.
What makes this example fall apart? Why couldn’t I start accepting rocks for cloths (from the tailor who also doesn’t value the rocks outside of a medium of exchange) knowing that I can later trade them to the rock collector for food? What stops the rock collector trading rocks for cloths to the tailor because the tailor knows that I will accept rocks for my shoes because I want to trade the rocks back to the rock collector for food?
I am not sure what this has to do with the minimum population size required for the regression theorem to be valid. Can you please explain how this statement ties into the original question?
You cannot then introduce a worthless paper and have everyone begin trading it for food, the paper HAS NO VALUE. The people would continue to trade in rocks. Now what the government forces people to accept the worthless paper because they say “this worthless paper is equal to one rock”. Key thing to note is that the paper HAS TO BE TIED TO SOMETHING OF VALUE, or people will not accept it.
People will begin to value the paper because of its tie to rocks. Over generations, the government cuts ties to rocks, so you have a completely fiat money. They then continue to use force to enforce the fiat money. This did not arise out of voluntary interations, and only succeeds through force.
I just realized that my question may have caused some confusion. I specifically want to know the minimum population size of the people who value a good for non-exchange reasons. I am not interested in the minimum population size of the market that is exchanging the good, only the population size of the people who value the good (which is a subset of the market population).
In my rock example there is only a single person (population size: 1) who values the rocks for non-exchange reasons. The market size in my example is 3 (rock collector, me and the tailor) but I am uninterested in that number.
The minimum amount of people needed for indirect exchange = 3:
http://mises.org/rothbard/mes/chap3a.asp
I am not suggesting a worthless piece of paper, I am suggesting a valuable rock. In my example the rock is only valued by one person so my question is, does the regression theorem require a minimum number of people who value the good outside of exchange value for it to become a medium of exchange?
Obviously the minimum is less than the market population size because in a barter economy mediums of exchange will arise that have no value to some actors but will have value to other actors (i.e.: gold/silver).
As I mentioned in a follow-up reply, it seems my original question was misinterpreted. I am not interested in the market size required for indirect exchange, I am interested in the minimum number of people who value a good for non-exchange purposes in order for it to become a medium of exchange.
Two people have to value it for consumption, and at least one has to accept it as a medium for exchange. Person A and Person B both enjoy rocks. Person C would be willing to take rocks to trade to Person A or B for whatever goods they need.
Can you elaborate on why 2 people need to value it for consumption? What about my rock collector example (only 1 person valued the rocks for consumption) creates a problem?
This is what happens when I type examples out too quickly. My logic was flawed, and while I was reediting I refreshed to see your new post. 
Let us step back to what a medium of exchange is. A medium of exchange can only arise through indirect exchange (the case of adding in Person C). This means that there has to be a minimum of three people, because in the case of just two people, there is no medium of exchange, only direct barter.
Now, only one has to value the rocks as a consumption (not two as I originally stated… my mistake). Person B and Person C would then be willing to collect rocks, and would be willing to trade to eachother for goods, because they then know they can give person A the rocks in exchange for goods they want.
Minimum of 3 people (in order for indirect exchange), and at least one of the people has to value the rocks for consumption.
OK, so a minimum market size of 3 actors and a minimum of 1 actor must value the good outside of exchange. This seems reasonable to me.
In theory it could work, yes.. With a single individual there can be no medium of exchange, but if there are only two people then you could still have a money but it would be a very bizarre case because of the fact that the person buying the shells then will not buy anything with the money. It is a one way money, but it still works. If you add more than two people though the entire system becomes more plausible because two people could exchange the stones because of the value they gain for what the stone-lover will give for them.
Its just called direct exchange. Person A trades fish for the rock, Person B traded the rock for the fish. There is no money involved with two people.
If the person just valued rocks and had a set exchange rate for how he valued things then there is no reason why this could not result in prices and money.
Yes, two people have their own subjective preferences, and they could trade goods with eachother which would result in prices, but not a money (which can only arise through indirect exchange).