Nearly 2,500 years ago, Aristotle made some important observations about the origins of money, and of markets.

Of everything which we possess there are two uses: both belong to the thing as such, but not in the same manner, for one is the proper, and the other the improper or secondary use of it. For example, a shoe is used for wear, and is used for exchange; both are uses of the shoe. He who gives a shoe in exchange for money or food to him who wants one, does indeed use the shoe as a shoe, but this is not its proper or primary purpose, for a shoe is not made to be an object of barter. The same may be said of all possessions, for the art of exchange extends to all of them, and it arises at first from what is natural, from the circumstance that some have too little, others too much. Hence we may infer that retail trade is not a natural part of the art of getting wealth; had it been so, men would have ceased to exchange when they had enough. In the first community, indeed, which is the family, this art is obviously of no use, but it begins to be useful when the society increases. For the members of the family originally had all things in common; later, when the family divided into parts, the parts shared in many things, and different parts in different things, which they had to give in exchange for what they wanted, a kind of barter which is still practiced among barbarous nations who exchange with one another the necessaries of life and nothing more; giving and receiving wine, for example, in exchange for coin, and the like.

This sort of barter is not part of the wealth-getting art and is not contrary to nature, but is needed for the satisfaction of men's natural wants. The other or more complex form of exchange grew, as might have been inferred, out of the simpler. When the inhabitants of one country became more dependent on those of another, and they imported what they needed, and exported what they had too much of, money necessarily came into use. For the various necessaries of life are not easily carried about, and hence men agreed to employ in their dealings with each other something which was intrinsically useful and easily applicable to the purposes of life, for example, iron, silver, and the like. Of this the value was at first measured simply by size and weight, but in process of time they put a stamp upon it, to save the trouble of weighing and to mark the value…

When the use of coin had once been discovered, out of the barter of necessary articles arose the other art of wealth getting, namely, retail trade; which was at first probably a simple matter, but became more complicated as soon as men learned by experience whence and by what exchanges the greatest profit might be made. Originating in the use of coin, the art of getting wealth is generally thought to be chiefly concerned with it, and to be the art which produces riches and wealth; having to consider how they may be accumulated. Indeed, riches is assumed by many to be only a quantity of coin, because the arts of getting wealth and retail trade are concerned with coin. Others maintain that coined money is a mere sham, a thing not natural, but conventional only, because, if the users substitute another commodity for it, it is worthless, and because it is not useful as a means to any of the necessities of life, and, indeed, he who is rich in coin may often be in want of necessary food. But how can that be wealth of which a man may have a great abundance and yet perish with hunger, like Midas in the fable, whose insatiable prayer turned everything that was set before him into gold? (Aristotle’s Politics, Book I, Section 9).

The paradox that Aristotle points out is interesting. Money is clearly not wealth, because a person with nothing but money would starve. The answer, of course, is that money represents all other commodities. The medium of exchange is a measure of value, or the unit of account, of the barters people would negotiate if money were not available. Instead of me trading you two bottles of wine for a sheep, we can exchange money. I give you $10 for a sheep. You give me $5 each for bottles of wine, and end up buying two bottles. The $10 went back and forth, to no net effect; for this reason, some economists say that money is a “veil,” disguising but not really affecting the contours of trade. In the example, money was an artifice: the real exchange was the trade of wine for mutton.

Having a currency, however, reduces the frictions or “transactions costs” of the exchange, making it easier for both of us. Furthermore, if we have money the exchange need not be directly a barter between two people. If my only option is trading wine for sheep, but you don’t like wine, I can’t get any sheep, even if each sheep is “worth” two bottles of wine! Money breaks the dyadic relations of barter into separate exchanges, allowing me to obtain abstract command over goods and services (i.e., units of money) instead of having to take physical possession of a commodity I don’t value or can’t use. Money allows us to focus on an important aspect of scarcity, the “opportunity cost” of a commodity.

The problem is that money means one can store wealth. The Lockean ideas about property and fairness of wealth distribution are based on 2 factors: (1) others have "as much and as good" in terms of resources, and (2) there is no waste, in the sense that people do not accumulate more than they need (if I have more apples than I can use, they rot. Locke didn't say "Pareto optimality", but that is what he meant.

This has always bothered me. (And some other people). If I have more apples than I "need", we can all agree that there is waste. But suppose I have more money than I "need." Is that wasteful? Much of our political discussion appears to rest on the premise that it is.

The thing I think is interesting about the Aristotle quotes above is that they pervade lots of discussions today. Even at a more basic level than envy of wealth. Somehow, trade or exchange based on arbitrage is wrong, or at least not as morally good as "homemade." Think about how much nicer it seems if someone bakes you a loaf of bread instead of giving you a storebought pie as a housewarming gift.

Why don't people like markets?

Why do so many people think "trade is not a natural part of the art of getting wealth?"

Why is it that we teach sex ed, but not market ed, in schools? Market intercourse takes place a lot more often than the other kind, though teenagers might wish it were otherwise.

Money is the lubricant for market intercourse, but few people understand it.

We are stuck in Aristotle's world, when it comes to understanding money.