If you’ve ever wondered why money exists, you’ll likely appreciate a recent article from Maria Pia Paganelli, who teaches economics at San Antonio’s Trinity University. The article appears in the latest Intercollegiate Review.
Among Paganelli’s most interesting topics is the importance of money in fostering impersonal relationships:
Adam Smith explains that the introduction of monetary transactions transformed the relationships among individuals. With the introduction of money, transactions become impersonal. Before the introduction of monetary transactions, we had personal transactions. What this means is that before we started to use money on a regular basis to pay for wages, rents, and goods and services, exchanges between individuals were based on personal connections as opposed to impersonal ones.
To characterize something as impersonal today sounds distant and cold, whereas something personal is considered warm and nice. So the impersonal server at McDonald’s is not as pleasant as the smiling restaurant host who welcomes you by name. But this is not what Smith is talking about. For Smith, a personal relationship in trade is a potentially tyrannical relationship, while an impersonal one is potentially a source of freedom. And here is why. Consider your situation if you have no money to buy food. Your meal depends entirely on the good will of, say, the restaurant host: you are dependent on his will for your meal. You can offer to work for the restaurant owner in exchange for your meal. But you cannot be sure you will have dinner tonight. If the restaurant owner decides to close for a holiday, you have no meal.
Now extend this predicament to most of the other goods and services you need in your life. And consider what would happen if all of them came from the good will of a single person. You have no money to buy clothes. You have no money to buy shelter. You can get what you want only with an exchange of personal services—which this one person may or may not need. Basically, all you need to survive comes from your relationship with that one person. What you then have is a very personal relationship. Yet it can be the most oppressive servitude. You have one master, who may feed you, clothe you, shelter you. But you cannot maintain yourself without this master. It is an all-or-nothing situation. It is complete dependence. With monetary transactions, on the other hand, you lose this potential servitude, and you gain freedom. You now have a thousand masters, rather than one. If you walked away from your only personal source of subsistence, you would quickly find yourself in misery. Now, with a thousand masters, if you do not like one of them, you can walk away without much trouble at all.
Paganelli goes on to label money “coined liberty,” with the exception of legal tender. “When money is made legal tender, … it loses part of its freedom-enhancing characteristics and becomes an instrument of political coercion.” That’s why writers in this forum pay special attention when governments attempt to manipulate money.