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The Money Pendulum

As a result of many factors the supply of money tends to alternate in every age between too little and too much, with the pendulum swinging from excessive concern with the quality of money to the opposite extreme of an inflationary, excessive quantity of money.

In every age the supply of money tends to be either too generous or too restrictive, whether by objective standards or by those of creditors or debtors who have conflicting interests. According to the pendulum metatheory monetary theories do not deal with eternal verities but are prescriptions for courses of action that may be appropriate at particular times and places. Even when successful, by altering circumstances they ensure their own failure in the long term.

From the dawn of civilization about 3000 BC onwards, and geographically from China to the New World, Denmark to Fiji. The development of financial policy and institutions in Britain, the United States, France, Germany and Japan is traced up to the present day.

One of the most important improvements over the simplest forms of early barter was the tendency to select one or two items in preference to others so that the preferred items became partly accepted because of their qualities in acting as media of exchange. Commodities were chosen as preferred barter items for a number of reasons - some because they were conveniently and easily stored, some because they had high value densities and were easily portable, and some because they were durable. These commodities, being widely desired, would be easy to exchange for others and therefore they came to be accepted as money.

To the extent that the disadvantages of barter provided an impetus for the development of money that impetus was purely economic but archaeological, literary and linguistic evidence of the ancient world, and the tangible evidence of actual types of primitive money from many countries demonstrate that barter was not the main factor in the origins and earliest development of money.

Many societies had laws requiring compensation in some form for crimes of violence, instead of the Old Testament approach of "an eye for an eye". Note that the word to "pay" is derived from the Latin "pacare" meaning originally to pacify, appease, or make peace with - through the appropriate unit of value customarily acceptable to both sides. A similarly widespread custom was payment for brides in order to compensate the head of the family for the loss of a daughter's services. Rulers have since very ancient times imposed taxes on or exacted tribute from their subjects. Religious obligations might also entail payment of tribute or sacrifices of some kind. Thus in many societies there was a requirement for a means of payment for blood-money, bride-money, tax or tribute and this gave a great impetus to the spread of money.

Objects originally accepted for one purpose were often found to be useful for other non-economic purposes and, because of their growing acceptability began to be used for general trading also, supplementing or replacing barter.

Thus the use of money evolved out of deeply rooted customs; the clumsiness of barter provided an economic impulse but that was not the primary factor. It evolved independently in different parts of the world. About the only civilization that functioned without money was that of the Incas.