EVOLUTIONARY CHANGE: THE INVISIBLE HAND AND MONEY
Instead of being designed by men, civilization has evolved, according to one view. Social institutions [government, the rule of law, the social division of labor connoting production activities, markets (credit, labor, commodities, etc.), money, languages, mores (morals and values), et. al.] are determined not simply by preceding causes but as part of a process of unconscious self-organization of a structure or a pattern. These social institutions spontaneously come into existence. They are complex and self-maintaining mass phenomena. Reinforcing this point, Adam Smith wrote in The Theory of Moral Sentiments that men aiming at the ...view middle of the document...
4. The emergence of sophisticated indirect exchange: money. 5. The evolution of fully-backed money substitutes. 6. The evolution of partially-backed money substitutes (otherwise known as the evolution of fractional reserve banking). 7. The emergence of fiat money.
The Case in which Direct Exchange is Impossible: 1. Individual A is the holder of commodity p but desires only commodity r. 2. Individual B is the holder of commodity q but desires only commodity p. 3. Individual C is the holder of commodity r but desires only commodity q.
Necessary Conditions for Indirect Exchange to Occur: 1. The unequal valuations of the participants in exchange. 2. There must be more than two individuals and more than two kinds of commodities in the market. 3. There must be a difference in the marketability of the goods. 4. Indirect exchange must be beneficial to the exchanging participants.
Indirect exchange is distinguished from direct exchange according as a medium of exchange is interposed or not. Specification of the concepts of indirect exchange and monied exchange according to the Origin of Money Theory. Knowledge of the lay concept of monied exchange. Concept of Money: According to the Origin of Money Theory, money is the most marketable good. It is the commonly-used and generally accepted medium of exchange in an economy.
“The first view [change by design versus change by evolution] holds that human institutions will serve human purposes only if they have been deliberately designed for these purposes, often also that the fact that an institution exists is evidence of it having been created for a purpose, and always that we should re-design society and its institutions that all our actions will be wholly guided by known purposes.... Yet the belief underlying them, that we owe all beneficial institutions to design, and that only such design has made or can make them useful for our purposes, is largely false.” -- Friedrich A. Hayek from Law, Legislation and Liberty
The fatal conceit as identified by Friedrich A. Hayek in a 1988 book by the same name is the belief “that man is able to shape the world around him according to his wishes.” It is the fatal conceit which has facilitated the prevalent twentieth [and now twenty-first] century perspective that civilization is by design rather than having evolved. Evolutionary economics and the fatal conceit are part of the economist’s critique of the socialist form of economic organization.
FUNCTION OF MONEY
ORIGIN OF MONEY The case is not essentially different when supply and demand do not coincide quantitatively, e.g. when one indivisible good has to be exchanged for various goods in the possession of several persons. Indirect exchange becomes more necessary as division of labour increases and wants become more refined. In the present stage of economic development, the occasions when direct exchange is both possible and actually effected have already become very...