No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Eleven: Money, Money, Money! 252 rate would likely be in terms of one sheep. Of course we have no way of knowing from the text whether Adam, as the patriarch, simply set a rate or whether their combined output was kept as a common familial pool. Fortunately, we don’t need detailed understanding for our main point—the cost of negotiating exchange is relatively low in a two-good world. Of course as the population expanded and more goods became available, trading would become much more complicated. After Cain fled from killing Abel, his descendants began making musical instruments, and Tubal-cain was “the forger of all implements of bronze and iron.” By Noah’s time (at the latest), we see an understanding of construction techniques and wood craftsmanship—albeit with divine direction. Imagine being a shepherd in that early time and wanting to round out your household with musical instruments. You might go to Jubal to buy a lyre or a pipe. You have to hope that Jubal wants a sheep. What if he doesn’t? Or what if a lyre really isn’t worth a whole sheep and you really don’t want to cut one in half? What if he wants grain instead? So now you have to track down someone who has grain, arrange a trade of sheep for grain, and then go back to Jubal. What if whoever sells grain doesn’t want your sheep but wants a table? So now you have to find a carpenter…etc. As you can see, we have a significant problem to overcome once more products and possibilities of exchange come about. For an exchange to take place we have to have a double coincidence of wants —what one party has for trade must be what the other party to the exchange wants. As tradable opportunities increase, the double coincidence of wants problem becomes increasingly difficult. To overcome this problem, traders will tend to exchange for a good or commodity that everyone wants. If most everyone wants it, then you trade your product for that commodity, and then use that commodity to purchase other goods. So what is this “most marketable commodity” that serves as money ? Historically precious metals have been the most common choice for societies, but many other goods have functioned as well: tobacco, cows, shells, beads, etc. In World War II prisoner of war (POW) camps, cigarettes were the most marketable commodity and became the unofficial money of POWs . Gold and silver were the historic choices of free markets. In our chapter introduction we learned that silver was the commodity standard that was widely used in commercial activity in Abraham’s time. It is important to note that no central direction or government is required to get society to coalesce on a single monetary standard. Rather, it is in every individual’s self-interest to seek out and trade for that item which is most highly valued by all other potential trading partners. In his text Principles of Economics , the great economist and father of neoclassical economics, Carl Menger, identifies this as a critical feature of money… As each economizing individual becomes increasingly more aware of his economic interest, he is led by this interest, without any agreement, Double coincidence of wants: the necessary condition for trade to take place in a world without money; what each person has for trade must be wanted by the other for a trade to take place. Money: the most marketable commodity.