the mainstream gives you the impression that one day the government decided to print pieces of paper, call them dollars and insist they had to be accepted.
What are some flaws and problems with this story?
I know one of them is that it will be hard to get people to accept the money without force.
Would there be potential problems in working out market prices?
Robert Murphy says that even if the government printed money there would be problems in pricing because someone might say ok I will seel my house for 50 milion dollars.
But how would establishing relative prices be a problem? If the quantity of moeny was fixed an the government publicized this then won’t people adjust to establish relative prices?
Money comes about naturally through human interaction and the free exchange of goods and services. When people begin producing surpluses, that is, when they produce more than they need to survive, they begin trading their goods for other goods they desire, but which they don’t know how to (or don’t want to) produce on their own. For example, I know how to produce apples but not oranges, when I produce more than enough to satisfy my desire for apples, I will want to trade my extra apples for oranges. This is known as direct exchange, and it’s extremely problematic; it requires something known as the double coincidence of wants. This transaction requires me wanting oranges and having apples and the counter-part wanting apples and having oranges. If, for example, I want oranges, but he doesn’t want apples, but instead desires cherries, I must then find someone who produces cherries and wants apples, so that I can trade those cherries for oranges. This type of transaction is known as indirect trade, and even then it is problematic. Eventually, the community begins desiring products not only for their own consumption (use-value or industrial usefulness) but products they want solely for exchange (which they may not wish to consume at all). Products which are desired most by the community are said to be very “marketable,” and those goods which are most “marketable” become a media of exchange, that is, they become the monetary unit. Historically this has always been precious metals, specifically gold (and in some cases silver).
Gold and silver are desired not only for their industrial uses, but for their inherent qualities which suit them as money (tough, don’t spoil or rot, easily stored, easily carried). Society will only use monetary units if they, and other people in their community, value that monetary unit. This is why the Byzantium currency (silver coins) was used as a media of exchange in Europe long after the empire itself fell, and why whenever a King debases the currency (liquidates the metal keeping some for himself and redistributing the lighter less fine coins) the people value the coinage less, meaning they desire more money for their products (inflation). Eventually the coins are stored by goldsmiths or later in banks for paper notes which are redeemable on demand (you can go to the bank and get your gold/silver whenever you want), because paper is easier to carry and makes transactions even more efficient. But the value of the paper notes are directly tied to the value of the metals which back them. Usually a government will remove the actual monetary unit and replace it with just the notes themselves (fiat currency), in order to finance wars and other acts of aggression. The people will use the fiat notes because a) if they don’t they will go to jail, and b) they still value the notes from when they were backed by metal. The value of the dollar when you wake up is the same, at least for you, when you went to sleep the night before, and so on and so forth, but changes during the progression of that day. This is why the value of Gold today is worth as much as it was when it was money, while the notes (what you call dollars) have fallen in value by 97%. People who believe that money must be created by the state don’t understand this notion, in fact, they made claims like “the value of gold will fall dramatically when it’s no longer money.” This is because they misunderstand the nature of money; the link between gold/silver and value has never been broken. You’ll hear clueless CNBC morons ask questions like: “I don’t get why the price of gold ever goes up (relative to the dollar)! It’s practically useless!”
Look up “money as debt” on youtube - its actually seriously flawed - but the stuff about history is probably ok. Some flaws are fixed in money as debt II which is sadly not on youtube.
Detailed discussion of the current version of “fractional reserve banking”, including a discussion of a big error by Rothbard here.