Making Money, Part 2: It Started with Barter

March 16th, 2009

The origin of money goes back, of course, to the concept of barter where, in order to fulfill one’s own needs, a person had to produce something to swap for it. Of course, as society grew and people’s skills became more specialized, it became increasingly difficult to find someone with what you wanted who had a need for what you had to offer at the same moment. So, money was nothing more than a token—a clever convenience—to allow you to do what you do best when it was convenient for you to do it.

It had the added benefit in that it could be accumulated and parceled out for items of greater or lesser value than those you had to offer.

Thanks to a “middle-man” who would take and store what you produced and have available what you needed, you could work steadily at what you did best and find a place to swap your output for tokens that you could save and use to fulfill your own needs at a time of your choosing.

The basic notion of making money is central to what made our economy thrive and prosper. Coming to the New World, with it’s limitless frontiers and a fresh set of needs, people with skills from the Old World started businesses, produced essentials, and built an economy of accumulated assets. It was those assets and the accumulating compensation for the production of those assets that built our nation’s wealth. And it was that wealth that created the engine for our future economic growth.

Our Economy’s “Growth Engine”

What was that engine? It was the perpetual morphing of luxuries into necessities. The transition over time from rugged frontier life to self-indulgent, urban sophistication, has been the driving force behind what was the most energetic, exciting, flourishing economy on the planet.

One has only to listen to the teenage members of most families who never, ever, had to do without a TV in their rooms and cars to drive for their sixteenth birthday. In my youth, a home had a radio in the living room and a refrigerator in the kitchen. In my father’s comparable years, it may have been a Victrola and an icebox. As for the generation before that, I can’t imagine what comforts graced the homes of post-bellum America.

Keeping up with the Joneses was, and it continues to be, a remarkable stimulus. And the point is that this engine is responsible, as much as we might be tempted to indulge ourselves in self-criticism for it, for not only spoiling us with escalating comfort, but producing valuable assets to add to the pool of money with which we can pay people to create them.

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