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The Austrian school – what is money?

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the money of the 21st century or only a fleeting appearance of modern times is the Bitcoin? what is money at all? What properties distinguish “ money”? Just the libertarian branch of the Bitcoin enthusiasts praise the Kryptowährung as “The future of money”. This series of articles takes up the findings of the Austrian school and places Kryptowährungen in the free market think. As source code “what has Government done to our money?” by Murray N. Rothbard.

Human interaction and forms of trade

to a fundamental understanding of ‘Money’, why it exists, what properties it usually has, and which allows the company, gives us a simple thought experiment:

the direct barter economy

imagine Crusoe and Friday isolated on an island above. Crusoe catches fish and Friday collecting berries. At the end of the day both share. Here, no money is required; Crusoe are fish, Friday is berries–the exchange ratio (the price) is established by both sides negotiating. (Each subjective) is invisible. It is only obvious that both know a subjective gain, since they voluntarily Act . One of the two estimates his own good more valuable, no Exchange takes place. Crusoe and Friday swap their goods right against each other; It’s direct barter economy i.e. a .

The problem of direct barter economy

now the society is more complex: Jones, who produced bicycles, is added. Immediately present themselves two complications of direct barter economy . First, Jones his bikes unable to share i.e. If he wants to buy only one fish, he would have to give up a whole bike for that. Secondly Jones is instructed that Crusoe randomly want to get to fish a bike on it . Abstract said the direct barter economy suffers from indivisible goods and a lack of random compatible needs . It is clear that a complex, civilized society can not be based on direct barter.

The indirect barter economy

but the dilemma is not irretrievable: a medium for Exchange enables the indirect barter . Rather than change the fish against Berry, Crusoe sells his fish for the medium and then sells the medium for the berries. With this extra step, with the medium to Exchange, ‘the money’ is born. The money is the lubricant for an economy. It allows everyone with everyone can act. The medium thus fulfils an important role in the economy and therefore generates its own demand.  A medium in a business is established, it becomes more marketable and more money is more marketable, more established itself .

Money, no matter in what form, is a . Historically, various goods have served as money: tobacco, sugar, salt, tea, mussels, corn, silver and gold. Especially gold and Silver were used over the centuries by the market as a medium. Gold is suitable very well as a medium. It is well separable, rare in contrast to bicycles does not spoil and is relatively easy to transport . The value of money is determined by the absolute amount of money and the absolute demand of buyers and Hodler .

money is a blessing for our society benefits from money. Without money, there would be no sharing, no specialization and thus no social progress . Jones can now sell its bicycles for money and this money buy berries. money is divisible and generally accepted. all goods have a in money exchange ratio and can be compared with each other. Money allows you to economic calculus and rates . The entrepreneur can now create a profit and loss account and better use resources to the meet of the needs of consumers. Money is in addition to its fundamental function as a medium for Exchange as unit and default . Because money is widely accepted and can be stored in order to be issued in the future, it also serves as a read only memory . Note: Money is primary a medium to Exchange and functions as a unit of account, default and memory are a consequence of the medium.

Conclusion – what is money?

Summarized : money is a commodity in the economy, which is used as a medium for indirect action of goods. Important properties are durability, divisibility and rarity. Money allows Division of labor, specialization, a higher standard of living, economic planning, measure to the comparison of goods and a store of value. It is responsible and it no longer indispensable for today’s world.

The next article of “The Austrian school” deals with the contemporary central banking and Fiat currency.


about Alexander Roos

 Alexander Roos Alexander Roos happened earlier in the year 2018 to the BTC ECHO team. He completed a Bachelor of science in “Management, Philosophy & Economics” at the Frankfurt School of finance & management and his Bachelorthese “the fields of application and adaptation of the Blockchain technology” written. In decentralised Kryptowährungen, Alex sees the invention of money through the free market. His focus is on free-market principles applied in Blockchain projects and privacy-coins.

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