Money and prices as information carriers

The phenomenon of money is something that permeates the whole history of mankind and what has already been written and told so much about; very often money is mentioned as something negative, sometimes even as “the root of all evil”.

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Recently, I have seen on the Internet a discussion about the greatest discoveries of human civilization; it was no surprise to read about the fire, the invention of wheels and so on. But no one mentioned, although it is in my opinion one of the most important breakthrough in history on the similar level like wheel and fire, the beginning of using some good as a universal mean of exchange, the creation of money. The phenomenon of money is something that permeates the whole history of mankind and what has already been written and told so much about; very often money is mentioned as something negative, sometimes even as “the root of all evil”. I believe that the cause of such conclusions, and because of why no one has mentioned money in the above mentioned discussion, is that the most fundamental functions of money, its most important meaning, remains hidden for most people.

In money – or in market prices – we express the scarcity of all goods: if something is expensive (if it costs a lot of money) it means the rarity of the thing or the great demand for it; low price, on the contrary, signals the abundance of that good or lack of interest in it. Growing price indicates rising rarity or demand, the decreasing price means the opposite. That’s because if there is less goods than people demand, sellers can afford to raise the prices (there are many buyers, so even if the raising price discourage some buyers, there will still be enough of them); and on the contrary, if there is more of something than people demand, sellers hardly find sales for this good, so they have to attract buyers by price reduction.

Although the above principles know – at least on an intuitive level - every schoolboy, not everyone is fully aware of their implications. The rising price that proves the lack of some commodity is also an incentive for entrepreneurs (and in this sense, an entrepreneur can actually be anyone) to start producing that commodity and supplying it to the people because they can get rich; decreasing price – indicating the surplus of some product – on the contrary causes its producers and sellers to fail (only the most capable ones will “coincidentally” make it through, because they can produce that good with the lowest production costs, so even after the price drop, they still generate profit). Though failures of companies may seem at first glance as something negative (and for its owners and employees it probably is), it is a necessary process that forces bankrupting entrepreneurs and their employees to move to other industries (or more efficient firms) where they are more needed; the goods produced by bankrupt companies are contrariwise dispensable, because the reason for the decreasing prices was the lack of interest in them.

Billions of people around the world are coordinated by money and prices like that: for example, if there is a lack of some raw material, you don’t even have to have the slightest idea, what’s going on, why there is a lack of it, or what people make of it. But you will not waste with it by tracking your own expenses (the lack of this raw material leads to an increase of its price, which leads to an increase of price of everything that is produced of it; and if these things are too expensive, it will probably be more convenient for you to limit their use or replace them with something else); if there is a surplus of anything, the profits in this industry are decreasing together with the salaries of employees which motivates them to go doing something else and to exploit their potential more usefully. This – almost miraculous – function of money is one of the cornerstones of human society; and if no one intervene with this process from the position of force, a better way of allocating resources can hardly be imagined. But those who interfere there are more than enough in today’s world; about how they do it, and what their consequences are, we’ll be talking about next time.

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Česky: https://www.mises.cz/clanky/penize-a-ceny-jako-nositele-informaci-1368.aspx
Author: Urza

Who is him?

Urza is Czech anarcho-capitalist author, he has written about thousand of libertarian texts on the web and printed medias and also the first Czech book on anarchocapitalism. He lectures at schools and conferences, made a number of videos and is often invited to many discussions.

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