Monetary Economics, History of

Abstract

As with so much else in the Western tradition, theorizing about the role of money can be traced back to Plato and Aristotle in the fourth century bce, although they may have drawn on pre-Socratic philosophers whose works survive, if at all, only in fragments. In his Republic (1974), Plato remarked that money was a symbol devised to make exchange easier. He disapproved of gold and silver as money, preferring a currency that would have value only internally, not in external commerce. The analysis in Aristotle’s Nicomachean Ethics (1996) and Politics (1984) of what constitutes just exchange led Aristotle to a more systematic discussion of a medium of exchange. His account of the functions of money, and of the properties that suit a commodity such as gold or silver to be the medium of exchange, as well as his use of the myth of Midas to distinguish between gold and wealth, influenced comparable presentations by Nicolas Oresme in about 1360 (Oresme, de Sassoferrato and Buridan, 1989), Adam Smith (1776), and, through Smith, any number of 19th-century textbooks (see Menger, 1892; Monroe, 1923). Barter might be the most basic form of exchange, but it involves accepting goods one does not wish to consume in order to make a further exchange for what is desired. Aristotle noted the convenience of a generally accepted medium of exchange in reducing the number of transactions required. He saw the convenience of stating prices in terms of the medium of exchange, and that, if a commodity is to serve as a medium of exchange, it must also be a store of value, retaining purchasing power between being received and being spent (but he did not mention the function of money as a standard of deferred payment).