He states:
The cumulative development of a medium of exchange on the
free market is the only way money can become established. Money cannot originate
in any other way, neither by everyone suddenly deciding to create money out of
useless material, nor by government calling bits of paper “money.”
For embedded in the demand for money is knowledge of the money-prices of the immediate past; in
contrast to directly-used consumers’ or producers’ goods, money must have pre-
existing prices on which to ground a demand.
But the only way this can happen is by beginning with a useful commodity under barter, and then adding demand for a medium for exchange to the previous demand for direct use (e.g., for ornaments, in
the case of gold).
Thus, government is powerless to create money for the
economy; it can only be developed by the processes of the free market.
End of quote.
OK, that makes a lot of sense. What I don’t understand is how this fits in with the history of planet Earth.
Say a country wins independence in the Twentieth Century, after every other country has gone off the gold standard. It too, adopts a new paper currency and declares it to be the only legal tender. This has happened countless times. Guess what? You can go to the store and buy stuff with it. Why is that not money?
Come to think of it, when a country goes off a previous gold standard and introduces fiat money, like the US did in the 70’s I believe, those green papers can be used to buy stuff and has no other inherent value. According to Rothbard , it ain’t money. But everyone uses it to buy and sell.Doesn’t that make it money?
Did Rothbard mean “It’s not money the way I define it?” Does that mean that he created a definition of money by fiat, unrelated to its popular use? I dunno, a good definiton of money should include the stuff that’s been used exclusively for money world wide for decades.
In short, I’m totally in the dark here. Can anyone please explain? [One syllable everyday words preferred].
Thanks in advance.