The Essential Rothbard - Ludwig von Mises Institute

The Essential Rothbard 37
this very process has a spiraling, or snowballing, effect.” 77 Soon
one or two commodities emerge into general use as a medium of
exchange. And this, precisely, is money. Gold and silver have
almost always been the commodities that win the competition for
marketability. “Accordingly, every modern currency unit originated
as a unit of weight of gold or silver.” 78
This process was no accident; according to the regression theorem,
money could not have originated by government fiat. There
would be no means to determine the purchasing power of money
that was not initially a commodity.
One of the important achievements of the regression theory
is its establishment of the fact that money must . . . develop
out of a commodity already in demand for direct use, the
commodity then being used as a more and more general
medium of exchange. Demand for a good as a medium of
exchange must be predicated on a previously existing array of
prices in terms of other goods. 79
We can already respond to the following question: what is the
optimum quantity of money? If one has understood the explanation
of money’s genesis, the answer is apparent. An increase in
the supply of money does not increase real wealth, since money
is used only in exchange. 80 “Any quantity of money in society is
‘optimal’.” 81 The answer remains the same when paper money has
been introduced.
A problem now arises for the analysis so far presented. If an
increase in the supply of money does not increase real wealth, why
have governments continually resorted to inflation? Rothbard’s
77
Ibid., p. 13.
78
Ibid., p. 17; emphasis in the original.
79
Man, Economy, and State with Power and Market, pp. 274–75.
80The exception of nonmonetary uses of gold and silver can for our
purposes be ignored.
81
Case Against the Fed, p. 20; emphasis in the original.