Mises's account of money's evolution from barter is the definitive refutation of the chartalist myth that money originated through government decree. Money emerged spontaneously through market processes as individuals sought to reduce the transaction costs of barter. Gold and silver became money because they possessed properties that made them uniquely suitable as media of exchange: durability, divisibility, portability, recognizability, and scarcity. Government's role was parasitic—monopolizing existing money and debasing it. The historical evidence overwhelmingly supports the commodity theory of money's origin against the state theory that claims money is whatever government declares it to be.

The spontaneous evolution of money is a paradigm case of spontaneous order—an institution that emerged from human action but not human design. No one invented money; it evolved through a process of cultural selection as people discovered that indirect exchange through a medium was more efficient than direct barter. This evolutionary account has profound implications: it means money, like language or law, functions best when it's allowed to evolve through decentralized adaptation rather than being controlled by political authorities. The historical record shows that government monopolization of money has consistently resulted in debasement and inflation.

Mises correctly identifies marketability as the key to understanding which commodities emerge as money. A commodity's marketability depends on the existence of a ready market with low transaction costs—many willing buyers, easily verified quality, stable value. Precious metals emerged as money in most societies because they scored highly on all dimensions of marketability. But marketability is not fixed—it depends on technology and institutions. In modern times, the technologies of banking and clearing systems have made bank liabilities (deposits and notes) highly marketable, allowing them to function as money. The evolution of money didn't stop with gold; it continues through market innovations in payment systems.

The regression theorem is one of Mises's greatest achievements. It solves the circularity problem in monetary theory: money has value because people expect it to be accepted in exchange, but why do they expect it to be accepted? Mises shows that this expectation traces back historically to the commodity's original use-value. Gold became money because it was first valued for jewelry and ornamentation; people then accepted it as a medium of exchange because they knew it had independent value. This means fiat money—paper money with no commodity backing—can only arise from commodity money. Government cannot simply decree value into worthless paper; it can only debase commodity money gradually until the link is forgotten.

The regression theorem demonstrates that money's value rests ultimately on its use-value as a commodity. This has important implications for monetary policy. Fiat money systems, disconnected from any commodity base, lack this foundation. The value of fiat money rests entirely on confidence in the issuing authority's restraint—a confidence that history shows is usually misplaced. This is why I propose denationalizing money: allowing competing private currencies to circulate freely. Market competition would select for stable currencies, because issuers who inflated would see their currencies abandoned for more stable alternatives. The regression theorem shows that this is possible—new currencies can emerge if they're backed by assets with independent value.

Mises's regression theorem is sometimes misinterpreted as implying that all money must originate as a commodity. More precisely, it shows that to become generally accepted, a medium must have a history of being valued. Commodity value is one source of such history, but not the only one. A privately issued currency backed by valuable assets could also satisfy the regression theorem—its initial value derives from its redemption claim against those assets. Over time, if widely accepted, the currency might circulate based on confidence in the issuer even if immediate redemption becomes impractical. The theorem constrains but doesn't eliminate the possibility of monetary evolution beyond commodity money.

Mises improved on the naive quantity theory by incorporating changes in demand for money and by emphasizing that monetary changes affect relative prices, not just the price level. When the money supply expands, the new money enters at specific points, benefiting those who receive it first at the expense of those who receive it later or not at all. This Cantillon effect means inflation redistributes wealth in addition to raising prices. Moreover, the expansion affects different prices differently—capital goods prices before consumer goods prices, setting in motion the business cycle. The quantity theory is valid as a first approximation, but Mises's refinements are essential for understanding inflation's real effects.

The crucial point Mises makes is that money is not neutral—changes in its quantity don't affect all prices equally or simultaneously. The injection of new money distorts relative prices, sending false signals about resource scarcities and profit opportunities. This distortion is the root of the business cycle. The naive quantity theory suggests that inflation merely raises the price level uniformly, like changing the units of measurement. But real inflation involves dynamic disequilibrium as some prices rise before others, some sectors expand while others contract, and resources are misallocated in ways that must eventually be reversed. This is why even 'moderate' inflation is harmful—it disrupts the price signals that coordinate economic activity.

Mises's critique of the naive quantity theory is important, but we should also recognize the theory's core validity: in the long run, excessive money creation causes inflation. The demand for money isn't infinitely elastic—if money is created faster than money demand grows, prices must rise. Under free banking, competitive note issue would constrain money creation automatically. A bank that overissued would face redemption demands as its notes returned to rival banks for clearing. This market discipline would keep money supply aligned with money demand without requiring government management. The quantity theory's problems arise from government money monopolies that eliminate this market constraint on overissue.

The connection between sound money and economic calculation is fundamental. Unstable money corrupts the calculation process that guides entrepreneurial decision-making. When inflation is high, entrepreneurs cannot distinguish real profit opportunities from nominal price changes. Accounting profits may be illusory, reflecting monetary depreciation rather than value creation. Firms may consume capital without realizing it because depreciation allowances calculated in depreciating currency are insufficient to maintain the capital stock. This is why hyperinflation leads to economic collapse—it destroys the informational infrastructure needed for rational production. Sound money, ideally a gold standard, is essential for maintaining calculable economic order.

Mises's point about monetary calculation reinforces the case against central planning. Even within a market economy, inflation disrupts calculation by distorting price signals. Under socialism, where there are no genuine market prices for capital goods, rational calculation is impossible even with stable money. But inflation compounds the problem: it makes even consumer goods prices unreliable guides to real scarcities. The combination of central planning and fiat money is especially destructive—neither the price structure nor the monetary unit provides reliable information for economic coordination. This is why communist economies with chronic inflation suffered such severe misallocation of resources.

Stable money is essential for economic calculation, but stability doesn't require a fixed money supply. What matters is that the purchasing power of money remains predictable, allowing prices to provide reliable signals about real scarcities. Under free banking, the money supply would adjust elastically to changes in money demand, maintaining stable purchasing power without requiring central management. When money demand rises (perhaps due to economic growth), banks would issue more currency to meet it. When money demand falls, currency would return to banks for redemption. This automatic adjustment would provide better stability than either fixed commodity money supplies or discretionary central bank management.