I am always annoyed when money is referred to as a “store of value”. Value is not a substance that can be stored; it is demonstrated in action.
As Mises writes, “Value is the importance that acting man attaches to ultimate ends. ... Value is not intrinsic, it is not in things. It is within us; it is the way in which man reacts to the conditions of his environment. ... It is reflected in human conduct.”
How can “importance” or “the way man reacts” be stored? Such talk is nonsense; scientism run amok. Money is, as Rothbard points out, a medium of exchange that permits indirect exchange to be engaged in—thereby overcoming the limitations of barter, or direct exchange, such as the requirement for a double coincidence of wants. The question that occurs to me is: could money arise in a two-person economy (say, on an island)?
It seems that if money were really a store of value, then it could arise in a two-person economy (or even a one-person economy?). But it seems clear that money is not a store of value. And it seems it could not help solve the coincidence of wants problem, since there are only two producers on the island. If A wants to buy eggs with my bread, and B wants to buy shoes with his eggs, then money does not solve this problem.
However, it seems to me that there are at least two other possible uses of money in this two-person economy. One is debt accounting, the other is divisibility, although these seem to be linked. As Peter Klein mentioned to me, if A has a cow to trade and B has a loaf of bread, even if B wants meat for his bread, and A wants bread for his meat, it’s may not be possible for A to give half-a-cow to B. So possibly money could serve as “change” or as deferred payment—B gets the whole cow, and gives the bread and some money (say, dried coconut meat) in exchange. Or, A pays for the loaf of bread in money. When B accumulates enough “money” to buy a whole cow from B, he can do this. But it is not clear that this solves any problem that simple bookkeeping/debts could not solve.
Most writing I am aware of treats the Crusoe one-person situation, or a multi-person economy—not this two-person situation. Any thoughts?
