Monetary vs Non-Monetary Gold
The Question of Miniscule Quantities of Gold Money During the Transition From Barter to a Money Economy
If all existing available forms of gold are placed in one of the two categories of monetary or non-monetery gold, then those two categories must be simply synonymous with the two categories of exchange-valued and subjective use-valued gold, respectively. These are not categories intrinsic to the form of gold in question, but are the result of the intent of the specific holder of the gold to either employ the gold directly to satisfy subjective ends or to indirectly do so through an exchange process. If a given sample of gold potentially has both subjective use-value and exchange-value to its holder, the economic value is the value which is the greater of the two, at a particular time. (cont)It is sometimes questioned as to how Austrian theory can claim that any amount of money is sufficient to supply all of the services that money can provide when the very first use of gold as money must inherently have involved very small amounts of gold.
For example, from WILLIAM BARNETT II AND WALTER BLOCK's article in QJAE v7 #1, ON THE OPTIMUM QUANTITY OF MONEY --
"...if we go back in time far enough11 to reach the period of barter, right before the advent of money, there was an occasion when gold was first used to intermediate trade, not merely as a valuable commodity on its own. At that point in time, the amount of gold used for this purpose was presumably minuscule. If so, then given Mises’s and Rothbard’s insistence that any amount of gold money will serve as well as any other, and there is no need to expand this supply (indeed, if this somehow occurs it is equivalent to a “market failure”),12 then it logically follows that this teeny tiny amount of gold which was first used at the dawn of the creation of money should always suffice, even unto the present day...."
While the basis of this article, the controversy over the interpretation of Mises and Rothbard in regards to the total quantity of money is interesting in its own right, here I am only interested in the significance of the fact that the quantity of actual gold money must have been very small in the beginning.
The reason that this fact is of little actual significance is that while the end of exclusive barter may have marked the beginning of actual money, the existence of exchange-valued goods, including all forms of gold, was fully present. In fact, by definition, every good involved in a barter transaction must have been an exchange-valued good for the person who gives it up.
From our initial assumption above that all forms of gold must be either monetary or non-monetary, and from the fact that monetary gold must be synonymous with exchange-valued gold, it follows that monetary gold at the point in time of transition from barter would not at all have been in miniscule quantity.
The implication is that the evolution of actual money should be thought of, not as a transition from direct to indirect exchange, but as a modification of most of the existing forms of monetary gold in which any characteristics which tend to produce varying subjective valuations for different individuals are scrubbed away.