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Specialization and the Emergence and the Value of Money

In: Increasing Returns and Economic Analysis

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  • Wenli Cheng

Abstract

Why did money emerge? And how is the value of money determined? These are two of the fundamental questions in monetary economics on which distinguished economists of earlier generations have provided numerous insights. Adam Smith (1976, Chapter 4) identified specialization as the driving force behind the emergence of money, and suggested that the choice of commodity-money depends on the marketability of the commodity. Menger (1923) emphasized that the emergence of money is a natural consequence of decentralized actions of self-interested individuals. Jevons (1875) suggested that ‘double coincidence of wants’ — one not only has what one’s trading partner wants but also wants what one’s trading partner has — is hard to obtain, thus in the absence of such happy coincidences, the completion of trade needs to be assisted by a medium of exchange, money. Von Mises (1924) indicated that the value of money is based on the quantity of commodities a given amount of money can exchange for and that the value of commodity-money depends on both the commodity’s use as consumption or production goods and its use as a medium of exchange.

Suggested Citation

  • Wenli Cheng, 1998. "Specialization and the Emergence and the Value of Money," Palgrave Macmillan Books, in: Kenneth J. Arrow & Yew-Kwang Ng & Xiaokai Yang (ed.), Increasing Returns and Economic Analysis, chapter 2, pages 71-89, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-26255-7_4
    DOI: 10.1007/978-1-349-26255-7_4
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    Cited by:

    1. Cheng, Wenli & Yang, Xiaokai, 2004. "Inframarginal analysis of division of labor: A survey," Journal of Economic Behavior & Organization, Elsevier, vol. 55(2), pages 137-174, October.

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