Exclusive Money Based Economy
An exclusive money-based economy is one where goods or services are systematically exchanged against a fixed notion of money, to the exclusion of anything else.
Advantages
Exclusively money-based economy seems quite natural to all of us. I has clear advantages:
- There is a single reference value
- …
Disadvantages
- Liquidity problems can cause exchanges that are not otherwise dependent on this money, to be halted.
- It is often unclear who produces this money and for what purpose. Nowadays, are Central Banks producing the money, or Private Banks?
- It is often unclear whether this money is distributed in any efficient way to start with, and the distribution is clearly difficult to change.
- Having an exclusive notion of money triggers wealth cumulation behaviours, which sometimes are counter-productive.
- Having an exclusive notion of money favours deals in which the relative value of items is made uniform across large regions and populations.
Indeed, a more refined point is that, even on a daily basis, money favours deals in which the relative value of items is made uniform across large regions and populations. I.e. money makes it difficult to settle an exchange in which, even if the deal clearly suits all the parties involved, the deal would seem unfair if rephrased in terms of standard prices. This point may be a profound one: after all as individuals we rarely see items as having the same value; otherwise items would reach some stable distributions amongst us and never be exchanged again… The entire economy is based on the fact that different people want different things at different times. Thus, giving items a single, one-dimensional value may not be optimal in terms of favouring exchanges, in many situations.
References
- A fixed money is not an absolute necessity for the comparison of goods… according to Mises, cf. 1.2.15.