Money as a Crusoe Concept

[Mike Marotta]

Money as a Crusoe Concept
(c) Copyright 2005, 2008 by Michael E. Marotta
mmarotta-at-emich-dot-edu

(These comments came from a series of posts I made in early 2005 to
www.solohq.com, now called rebirthofreason.com. Based on replies –
objections, mostly – I posted another version to The Molinari
Institute group discussion on Yahoo at http://groups.yahoo.com/group/molinari-institute/
What follows is a narrow presentation of the basic claim. I am
expanding the thesis for more formal presentation in an acadmic
venue.)

Economists generally recognize money as a social good, required for
trade. Money is any means of indirect barter. From that, money is
also a store of wealth and a unit of account. However, alone, on an
island, Robinson Crusoe would need money.

Money's primary attribute is that it is a store of value. This is what
allows money to be a unit of account and a medium of exchange. On his
island –in the Defoe story, actually – Crusoe's primary money was
food. If he could store food, his labor could be invested. When he
discovered that he had accidentally sowed wheat which “took” he was
overjoyed.

Historically, in fact, wheat (not gold or silver or even cows) was the
first form of money. In other times and places, stone arrowheads --
which require significant effort -- would be a form of “money” not for
trade – there is little evidence of that – but as a store of labor for
the individual who makes it.

As a store of effort, money then becomes a medium of exchange. It is
also possible to “exchange” with yourself across time. Crusoe can fish
today and catch more than he needs. Some he can dry. The chum he can
bury to improve the soil into which he will plant wheat later. Thus,
in planning and carrying out plans, Crusoe can engage in economic
trade with himself across time.

Planting today means harvesting tomorrow, but should Crusoe plant?
Should he catch fish or look for coconuts? What Crusoe does on an
island is determined by how he values his time and the return on it.
Therefore, Crusoe needs bookkeeping of some sort and that means that
he must have a unit of account. He must have money as a conceptual
construct, some way to count and account meaningfully across
activities and commodities. Money is a tool for quantifying choices.

There are many kinds of money and almost anything can be money. He
might calculate in terms of wheat because it is useful, divisible and
easy to store. He might think in terms of hours, the one value over
which Crusoe has the most control. Whatever conceptual tool Crusoe
uses to quantify his choices, that is his money.

Rather than being a social convention, money is an artifact of
individual effort, thought and reward.
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