On pp. 30–34, Mises gives us an account of the origin of money (see also Mises 1998 : 402–404). Mises distinguishes “direct exchange” from “indirect exchange”: direct exchange involves no medium of exchange; and indirect exchange involves money used as medium of exchange.
This is described by Mises in the following way:
“Suppose that A and B exchange with each other a number of units of the commodities m and n. A acquires the commodity n because of the use-value that it has for him. He intends to consume it. The same is true of B, who acquires the commodity m for his immediate use. This is a case of direct exchange.” (Mises 2009 : 30).It is clear that Mises – like other Classical and neoclassical economists – imagines barter spot transactions (or direct and immediate exchange of goods for goods) in his account of the origin of money. This is evident in Mises’s words “for his immediate use”: if two people have exchanged present goods for immediate use, then no exchange of present for future goods (a credit/debt exchange) is imagined here. The barter spot trade is the foundation of Mises’s account of the origin of money.
Mises then asserts that the most marketable goods will become the common media of exchange, and eventually the number of such media will probably be reduced, and in theory to one (Mises 2009 : 32). Mises recognised two such fundamental media at the time The Theory of Money and Credit was originally written (1912): gold and silver (Mises 2009 : 33).
Mises’s account of the origin of money is subject to the same criticisms as that of Menger and others I have outlined here:
Anthropology, however, shows us that many money-less societies do not need to be based fundamentally on barter, and that they are capable of often evading the immediate double coincidence of wants problem by engaging in credit/debt transactions. In many societies, this takes the form of the gift exchange economy. In primitive human societies, the mutual giving of “gifts,” a type of debt/credit relation (Mauss 2002: 46), appears to be very important, and this incorporates social relations as well as commodities (the gift exchange economy bears some similarity to Peter Kropotkin’s notion of “mutual aid”).
While there appear to be instances where a medium of exchange has emerged from long distance trade, such as the cacao money of Mesoamerica and the salt money of Ethiopia (Graeber 2011: 75), money can arise in other ways:
(1) a unit of account can be developed by temple and palace complexes from weight units (as in ancient Egypt and Mesopotamia), and“Money” in the sense of a money of account (as a measure of value of commodities) can emerge before the medium of exchange role.
(2) money might emerge from wergild-like social practices (e.g., some Medieval societies).
Mises’s Austrian approach to money is flawed by focussing on money’s medium of exchange role, and the belief that this must always come first. It is also flawed by its inability to account for money having arisen by ways other than barter spot trades.
Bell, D. 1991. “Modes of Exchange: Gift and Commodity,” Journal of Socio-Economics 20.2: 155–167.
Graeber, David. 2011. Debt: The First 5,000 Years, Melville House, Brooklyn, N.Y.
Mauss, Marcel. 2002. The Gift: The Form and Reason for Exchange in Archaic Societies (trans. W. D. Halls), Routledge, London.
Mises, L. von. 1998 . Human Action: A Treatise on Economics. The Scholar’s Edition, Ludwig von Mises Institute, Auburn, Ala.
Mises, L. von. 2009 . The Theory of Money and Credit (trans. J. E. Batson), Mises Institute, Auburn, Ala.