Randall Kroszner

Quotes From

“On The Microfoundations of Money” (1990)

• Rather than providing a basis for ‘representation’ of economic phenomena, the GE construct may be more usefully considered as a moneyless comparison point which is used to sharpen other approaches.#
• The desire to isolate the essence of money led to an excessive emphasis on cleanly demarcating it from other goods, even though this impulse ran contrary to the role of relative marketability in the theory of the origin of money. Money is then distinguished from other commodities by being not simply the most marketable good but my being ‘absolutely’ marketable. The special property of ‘perfect’ saleability comes to define money itself. The initial criterion that identified money’s saleability relative to other goods gave way to a strict zero-one distinction that has hindered the investigation of the evolution processes that could result in the separation of the media of exchange from the accounting unit. The achievement of perfect saleability thus becomes the final stage in monetary evolution. Categorizing money in this way obscures the very important observation that even in a monetary economy some items are easier to ‘turn over’ than others (that is, goods may be placed on a continuum from least to most saleable).#
• Drawing on this analogy with Mises’ account, we might characterize this explanation of the further evolution towards separation and refined barter as a ‘progression theorem’. Thus, a decentralized decision-making process can explain, first, the emergence of a ‘money’ combining both the unit of account and medium of exchange to overcome the inconveniences of ‘crude’ barter, and, second, the separation of functions as ‘money’ enhances the saleability of other goods.#