If we turn to the questions “what is money and what not money is?” and “what is barter and what is not barter?” economists lead us down a path to incoherence and useless definitions. Barter is probably the most misunderstood economic function on the planet. The outcome is that economists have a broad definition of money and a narrow definition of barter, so broad and so narrow, respectively, that they are useless. They also lead to incoherent and inconsistent outcomes. Hence the analysis of money, proceeds from the principle that all essential phenomena of economic life are capable of being described in terms of goods and services, of decisions about them and of relations between them. Money spontaneously enters the picture in order to mediate transactions via its existence as a numeraire of exchange value, it does not affect the economic process of trade.
The direct form of barter is x Commodity A = y Commodity B. The form of direct barter is x use-value A = y use-value B. The articles A and B in this case are the relative monetary unit value AB of the two commodities. The monetary unit AB comes into existence only by the act of barter. The first step made by an object of utility towards acquiring exchange-value is when it forms a non-use-value for its owner, and that happens when it forms a superfluous portion of some article required for his immediate wants. In the direct barter of products, each commodity is directly a means of exchange to its owner, and to all other persons an equivalent, but that only in so far as it has use-value for them. Hence money spontaneously exists within all direct barter exchanges, and hence no barter based exchange can exist without the existence of money.
Money is born from trade, and cannot exist if removed from a trade or exchange of goods and services within a community of people.
It is man’s varying skills and different needs that prompted the exchange of goods and services. Thus came the need for a form of valuation that would determine how much or how many one kind of commodity should be exchanged with another good of a different quantity (or mass and volume). This ancient predicament of setting fair trade values gave birth to crude valuation tools and solutions, like counting and weighing. Thus the spontaneous emission of a numeraire to mediate barter based instantaneous exchanges of goods and services was observed. Its existence is a natural by-product of trade, it is not the creation of man or law, money is born solely from trade, and hence without trade money cannot exist. All instantaneous barter based exchanges, emit monetary exchange value. This foundational understanding, addresses the centauries of incoherent inconsistencies of economics.
Each barter or trade represents the circulation of commodities as a source of surplus-value. It is not true that on an exchange of commodities we give value for value. On the contrary, each of the two contracting parties in every case, gives a less for a greater value. ... If we really exchanged equal values, neither party would gain, it’s only when we exchange something in surplus for some we desire that both parties gain from the exchange. It is not to be assumed that we offer for sale articles required for our own consumption. Each party to the exchange wishes to part with a useless thing, in order to get one that they want; we want to give less for more, which is essentially capitalism in action. The use-value of a commodity is more serviceable to the buyer than to the seller, hence we shall see, it’s the money-form of a commodity that is more serviceable to the seller, as it supports a deferral of a future purchase. All barter based trades cannot defer future wants for a seller. Hence it is understand surplus-value cannot be created by circulation.
In trying to insert money into a Walrasian-Arrow-Debreu general equilibrium economy, economists are focused on a common medium of exchange—a common carrier of value from individual to individual through time. In the process of trying to explain why a particular carrier of value becomes common, economist falls back into using an eighteenth-century methodology, namely using unweighted categorization by characteristics, e.g. portability, divisibility, count-ability, durability, and so on, to explain the carrier chosen, and then call that carrier “money.” The tools of economics are not used to define what money is, and conflate the idea of money. Money does not exist as a carrier for it to be money, it simply mediates all forms of trade or exchange including barter.
We will address this enigma by defining money as part of the general equilibrium, being the spontaneous value between two supply and demand curves, thus money must always exist, but need not be tangible and may not require a standardised unit of account or require a subsequent payment via a tangible currency. Hence one can comprehend barter is entirely possible, as money spontaneously exists within all barter exchanges. We now have an entirely consistent framework for all forms of trade or exchange, independent of a standardised unit of account or means of payment, money spontaneously exists and mediates all exchanges.
The transaction-cost economizing evolution within barter structures, however, creates the conditions for the rise of a transaction premium appended to barter good exchanges over those involving a standardised unit of account. The double coincidence of wants dilemma is trivially solved via an absolute unit of account rather than a relative one spontaneously created in all trade, additionally “credit” and fractionalisation provides the means to transfer or adjust for any double coincidence of wants. We shall see that within a Decentralised Asset Market one can in fact exchange assets for Assets without the need for any currency or payment this is the Asset vs Asset (AVA) atomic swap.
Economics now universally works, without the need to create asset-specific exchange rules.
AUDUSD represent the barter based trade with the relative unit of money being AUDUSD. This represents "subjective" or exchange value of selling AUD for exchange with USD, no objective form of money exists and no currency based deferred payment is possible. Hence the monetary units of this exchange are AUDUSD, and the rate is set by the equilibrium point of supply vs demand of AUD and the supply vs demand of USD.
Now USDAUD is a different relative form of subjective money, which is equal to the equilibrium point of supply vs demand of USD and the supply vs demand of AUD. Hence barter based exchanges exist without the need for any standardized unit of account or medium of exchange. While money is always the spontaneous emission which mediates all trade, currency is entirely optional.
Within the process of trade, a rational man does not seek or desire any more or less than that which his own efforts can earn.
A free market trade, represents a voluntary choice and judgment of the men who are willing to trade with one their own efforts in return.
Hence when a man trades with others, he is counting, explicitly or implicitly, on their rationality; that is: on their ability to recognize the objective value of ones work.
The rational man trades value for value, he never seeks or desires the unearned.
Voluntary trade is the sole means that values can be exchanged within a moral society. Hence the exclusion of coercion or censorship is the precursor for the existence of a moral, civilized, and free society.
In essence trade value is derived from ones economic production capability, and hence the collective value of a currency area is the aggregate of their collective economic production.
The Tale of Barter and the creation of Currency
One man, we shall suppose, has more of a certain commodity than he himself has occasion for, while another has less. The former, consequently, would be glad to dispose of, and the latter to purchase, a part of this superfluity. But, if this latter should chance to have nothing that the former stands in need of, no exchange can be made between them. He cannot be their merchant, nor they his customers; and they are all of them thus mutually less serviceable to one another. To avoid the inconveniency of such situations, every prudent man, in every period of society, after the first establishment of the division of labour, must naturally have endeavored to manage his affairs in such a manner as to have at all times by him, besides the peculiar produce of his own industry, a certain quantity of some one commodity or other, such as he imagined few people would be likely to refuse in exchange for the produce of their industry. Thus was born currency in deferred payments, as without some article of known exchangeable value, such as coin, readily received as an equivalent for other things, the interchange of commodities is very limited, and consequently the divisions of labour very imperfectly established.
Coined currency increases, to an extent not easy to be calculated, the wealth of civilized communities. But however great the advantages attending the use of coins, their introduction did not, in any degree, affect the principle of exchanges. Equivalents are still given for equivalents, as currency is always neutral within any trade.