The theory of money that Aristotle sponsored in conscious opposition, so it seems to me, to the alternative one sponsored by Plato was this: the very existence of any noncommunist society involves the exchange of goods and services; this exchange, at first, ‘naturally’ takes the form of barter; but the people who want what other people have may not have what the latter want; therefore it will often be necessary to accept in exchange what one does not want in order to get what one does want by means of a further act of barter (indirect exchange); obvious convenience will then induce people to choose, tacitly or through legislative action, one commodity—Aristotle did not consider the possibility that people might choose more than one—as a Medium of Exchange. Aristotle briefly mentioned the fact that some commodities—such as the metals—are better fitted for this role than others, thus foreshadowing some of the tritest passages in nineteenth-century textbooks about homogeneity, divisibility, portability, relative stability of value,4 and so on. Moreover, the requirements of his rule of equivalence in exchange naturally led him to observe that the Medium of Exchange will also be used as a Measure of Value. And finally he recognized, implicitly at least, its use as a Store of Value. Three of the four functions of money traditionally listed in those nineteenth-century textbooks—the fourth is to serve as the Standard of Deferred Payments—can therefore be traced to Aristotle.
Essentially, this theory embodies two propositions. The first is that, whatever other purposes money may come to serve, its fundamental function, which defines it and accounts for its existence, is to serve as a medium of exchange. Therefore, this theory belongs to what Professor von Mises has described as ‘catallactic’ theories of money. The second proposition is that in order to serve as a medium of exchange in the markets of commodities, money itself must be one of these commodities. That is to say, it must be a thing that is useful and has exchange value independently of its monetary function—this is all that intrinsic value means in this connection—a value that can be compared with other values. Thus the money commodity goes by weight and quality as do other commodities; for convenience people may decide to put a stamp on it in order to save the trouble of having to weigh it every time, but this stamp only declares and guarantees the quantity and quality of the commodity contained in a coin and is not the cause of its value. This proposition, which, of course, is not either identical with the first or implied by it, will identify what we shall henceforth call Metallism or the Metallist Theory of Money in contrast to the Cartal Theory of which Plato’s is an example…
…Aristotle’s theory of money is a theory in the ordinary sense of this term, that is to say, an attempt to explain what money is and what money does. But, he presented it in a genetic form, as was his habit in dealing with any social institution: he lets money develop in what purports to be a historical sequence that starts from a condition or ‘stage’ in which there was no money.
1. Schumpeter, Joseph A. History of Economic Analysis. New York: Oxford UP, 1954. Print. 62-64.