Libertarian Jackass

"Life is short, but truth works far and lives long; let us speak truth." -- Schopenhauer

Monday, September 29, 2003

On the Origin of Money and the Absence of Government

Every once in a while some statist coward whimpers, "Seriously LJ, give me an example of anything that's been done in anarchy!" Basically, this is like saying: "Seriously LJ, give me an example of anything that's been done without a certain group of individuals exercising the use of deadly force or threatening the use of deadly force." Personally, I'm tempted to point out that anything productive that occurs does so in spite of the existence of government. Why? Guido Hulsmann states:

Error or failure is a permanent condition of human endeavor. It consists of choosing an alternative action that is less important (less preferred) than another one that could have been executed instead. Austrian business cycle theory does not have to assume that were it not for inflation market participants would not err at all. It can rely entirely on the idea that inflation causes additional errors; that is, more errors than otherwise would have occurred. . ."(Hulsmann, 2)

In other words, choices made by individuals in the face of the threat of deadly force represent less preferable choices. Dr. Murphy highlights the greatest example of a social institution (money) emerging without (and often in spite of) the actions of government:

One possible explanation is that a powerful ruler realized, either on his own or through wise counselors, that instituting money would benefit his people. So he then ordered everyone to accept some particular thing as money.

There are several problems with this theory. First, as Menger pointed out, we have no historical record of such an important event, even though money was used in all ancient civilizations. Second, there's the unlikelihood that someone could have invented the idea of money without ever experiencing it. And third, even if we did stipulate that a ruler could have discovered the idea of money while living in a state of barter, it would not be sufficient for him to simply designate the money good. He would also have to specify the precise exchange ratios between the newly defined money and all other goods. Otherwise, the people under his rule could evade his order to use the newfangled "money" by charging ridiculously high prices in terms of that good.


The origin of money provide an important example of "anything that's been done" in the absence of government. Not only is it a devastating example of social order emerging prior to the State, in terms of modern, advanced social organization (i.e. capitalism or industrialization), money is the ultimate foundation:

But the practical man, eager to improve human conditions by removing uneasiness as far as possible, must know whether, under given conditions, what he is planning is the best method, or even a method, to make people less uneasy. He must know whether what he wants to achieve will be an improvement when compared with the present state of affairs and with the advantages to be expected from the execution of other technically realizable projects which cannot be put into execution if the project he has in mind absorbs the available means. Such comparisons can only be made by the use of money prices.

Thus money becomes the vehicle of economic calculation. This is not a separate function of money. Money is the universally used medium of exchange, nothing else. Only because money is the common [p. 209] medium of exchange, because most goods and services can be sold and bought on the market against money, and only as far as this is the case, can men use money prices in reckoning. The exchange ratios between money and the various goods and services as established on the market of the past and as expected to be established on the market of the future are the mental tools of economic planning. Where there are no money prices, there are no such things as economic quantities. There are only various quantitative relations between various causes and effects in the external world. There is no means for man to find out what kind of action would best serve his endeavors to remove uneasiness as far as possible.

There is no need to dwell upon the primitive conditions of the household economy of self-sufficient farmers. These people performed only very simple processes of production. For them no calculation was needed, as they could directly compare input and output. If they wanted shirts, they grew hemp, they spun, wove, and sewed. They could, without any calculation, easily make up their minds whether or not the toil and trouble expended were compensated by the product. But for civilized mankind a return to such a life is out of the question.


Advance social organization depends on the absence of government (the origin and use of money). The existence of government produces and institutionalizes more human errors relative to what otherwise would exist.

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