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Tuesday, September 29, 2009

What is money?

Gary North explains,
Let us return to the original question: What is money? The best answer to this continual question was provided in 1912 by the Austrian economist, Ludwig von Mises. In his book, "The Theory of Money and Credit," he provided an answer in six words: money is the most marketable commodity. He had in mind gold and silver coins, but his theory encompassed any commodity that can or has served as money in history.

By defining money as the most marketable commodity, Mises integrated monetary theory with general economic theory. His theory of money was an extension of his theory of the free market. He rested his case for the free market on the right of private ownership.

It follows that attempts to fix the price for the time-preference for money, i.e., the rate of interest, will introduce the same distortions as attempts to fix the prices for medical care, labor, steel, or any other commodity. The Federal Reserve board members are engaged in the same Sysiphean task as the Soviet Gosplan.

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