The Function of Money

The General Economic Conditions for the Use of Money
Where the free exchange of goods and services is unknown, money is not wanted. In a state of society in which the division of labor was a purely domestic matter and production and consumption were consummated within the single household it would be just as useless as it would be for an isolated man.

But even in an economic order based on division of labor, money would still be unnecessary if the means of production were socialized, the control of production and the distribution of the finished product were in the hands of a central body, and individuals were not allowed to exchange the consumption goods allotted to them for the consumption goods allotted to others.

The phenomenon of money presupposes an economic order in which production is based on division of labor and in which private property consists not only in goods of the first order (consumption goods), but also in goods of higher orders (production goods). In such a society, there is no systematic centralized control of production, for this is inconceivable without centralized disposal over the means of production.

Production is "anarchistic." What is to be produced, and how it is to be produced, is decided in the first place by the owners of the means of production, who produce, however, not only for their own needs, but also for the needs of others, and in their valuations take into account, not only the use-value that they themselves attach to their products, but also the use-value that these possess in the estimation of the other members of the community.

The balancing of production and consumption takes place in the market, where the different producers meet to exchange goods and services by bargaining together.

The function of money is to facilitate the business of the market by acting as a common medium of exchange.

The Theory of Money and Credit

Money and Credit is an economics book written by Ludwig von Mises, originally published in German as Theorie des Geldes und der Umlaufsmittel in 1912.

Along with Carl Menger's Principles of Economics, and Eugen von Böhm-Bawerk's Capital and Interest, this work was a major contribution to economic theory.

Its first English translation was published in 1934, and Part Four was added by Mises to the English language edition in 1953. In this work, Mises looks at the nature and value of money, and its effect on determining monetary policy.

Included is his regression theorem, that tries to explain why money is demanded in its own right, as moneys at first glance do not serve a consumable need. Mises explained that moneys only can come about after there was a demand for the money commodity in a barter economy.

The German word Umlaufsmittel literally translates as "means of circulation" and was translated into the text of the English version as "fiduciary media".

However, the publisher thought the unusual terminology would irritate readers and substituted "money and credit" in the title, thereby losing the specific distinction Mises had made in selecting his original term.

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