Money originates in the free market. There is no other way it could have come about. Just because the king's and ruler's faces appear on money, people tend to think that money originated with the State. This is false. Money is not the invention of a king, government, or any other central planner. Money always exists as a valuable good in an economy before it is monopolized and used as a tool for expropriation by the ruling class.
- “He who controls the money supply of a nation controls the nation” - James A. Garfield
Money is a commodity. The only difference between money and any other commodity is that money is demanded as a medium of exchange. Money must be a directly serviceable good before it is used indirectly as a medium of exchange. In barter economies throughout history, people noticed that certain commodities (e.g. gold, silver, salt) tended to be more marketable than others because they were widely excepted for purposes of indirect exchange. It is difficult to trade a cow for eggs, but this problem is eased by trading in terms of a widely accepted good such as salt. Once a commodity is universally accepted as a medium of exchange it becomes money. Because money is universally accepted it provides a common unit with which to express different quantities of different goods and enables economic calculation.
How does money get its value?
According to Mises's regression theorem, as explained by Bob Murphy in The Origin of Money and Its Value, the purchasing power of money today is caused by its expected purchasing power tomorrow based on knowledge of its purchasing power yesterday.
Is money the root of all evil?
See the full text of Francisco d'Anconia's Money Speech for the most rousing explanation of the nature of money ever penned.
"If you ask me to name the proudest distinction of Americans, I would choose--because it contains all the others--the fact that they were the people who created the phrase 'to make money.' No other language or nation had ever used these words before; men had always thought of wealth as a static quantity--to be seized, begged, inherited, shared, looted or obtained as a favor. Americans were the first to understand that wealth has to be created. The words 'to make money' hold the essence of human morality.”
Additional Suggested Reading:
The Origin of Money and Its Value- Robert Murphy – Great Article! - "The importance of the Austrian school of economics is nowhere better demonstrated than in the area of monetary theory. It is in this realm that the simplifying assumptions of mainstream economic theory wreak the most havoc."
What Has Government Done To Our Money - Murray Rothbard - This book is an excellent account of the origin of money, the history of the dollar, and a step by step explanation of how governments have systematically destroyed the purchasing power of money to expropriate wealth from its citizens.
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