Money

Money is the commodity that serves as a general medium of exchange: the good every trader will accept, not because he wants it for its own sake, but because everyone else will accept it too. Objectivism treats it as one of the great achievements of a productive society, and as the standing evidence that men have chosen to deal with each other by trade rather than by force.

“Money is a tool of exchange, which cannot exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value.”
~ Ayn Rand, "Francisco's Money Speech", Atlas Shrugged

What money solves

Before money, exchange required a double coincidence of wants. A farmer with milk who wanted a cart had to find someone who both owned a cart and wanted milk, in the quantity and at the moment the milk was still good. Most beneficial trades could not be made at all, and the division of labour could not extend past the range of direct barter.

A medium of exchange removes the requirement. The farmer sells milk to whoever wants it and buys the cart from whoever has one, and the two transactions need have nothing to do with each other. Money is not a third thing added to the economy so much as the thing that makes an economy of specialists possible, and the historical order runs that way: money emerged from barter as traders converged on whichever commodity was most saleable, rather than being decreed into existence.

From that function, three others follow. Money is a unit of account, so that unlike goods can be compared on one scale and profit and loss can be calculated at all. It is a store of value, letting a producer carry purchasing power forward in time and so make long-range plans. And prices quoted in it carry information about relative scarcity that no participant needed to gather deliberately. See Capitalism and Free market.

Three forms

Commodity money is a good with non-monetary uses that also circulates as a medium of exchange — historically gold and silver, an arrangement usually called a gold standard when a currency is redeemable in it. Its supply cannot be enlarged by decision, only by mining, which is what its defenders regard as its central virtue.
Fiat money has no commodity backing and is money by declaration and legal tender law. Its quantity is set by a central authority, which makes possible both deliberate monetary policy and the deliberate erosion of savings. See Inflation.
Credit money consists of claims to payment — bank deposits, notes, instruments transferable between parties — which circulate as money while resting on someone's promise. Most of what functions as money in a modern economy is of this kind.

Objectivist writers have generally favoured a commodity standard and the removal of the state from banking, on the grounds that a supply nobody may enlarge cannot be used to transfer wealth quietly. The detailed economics of that position comes from the Austrian school — Ludwig von Mises above all — rather than from Rand, who endorsed the conclusion without producing the technical case herself.

Money as a moral symbol

Rand's distinctive treatment of the subject is ethical rather than economic, and it is concentrated in Francisco d'Anconia's speech in Atlas Shrugged.

The argument is that money is made, not found, and that every unit of it in a free economy stands for goods somebody produced and someone else voluntarily judged worth having. It cannot be the root of evil, because it is inert: it is a tool, and a tool does not select the purposes it serves. What money can do is prevent one thing — it will not let a man take what he has not earned by anyone's consent, which is why the alternative to a money economy is not innocence but the gun. See Trader Principle and Productiveness.

Rand also drew a distinction between money earned by production and money obtained by political favour. Where the state may grant advantages, wealth begins moving toward whoever is best connected rather than whoever produces most, and the currency stops tracking production. That is not an argument against money; it is an argument about what has been done to the system it operates in. See Statism and Antitrust.

Common misunderstandings

That money has intrinsic value. It does not, and Objectivism is not committed to saying so. Value is relational, and gold's monetary role rests on properties that make it suited to the job — durability, divisibility, portability, scarcity — not on value residing in the metal. See Value and Intrinsicism.
That money is wealth. Wealth is goods. Money is the claim on them, and multiplying the claims does not multiply the goods, which is the whole content of the argument against inflation.
That barter was a stage society passed through by plan. Money is treated in this account as a spontaneous result of individual trades, none of which aimed at producing a currency.
That the love of money is a fitting object of moral criticism. Rand's reply is that wanting money is wanting what one can trade for, and that the criticism is normally aimed at the productive rather than at anyone who acquired money by other means.

Discussion

References

Rand, Ayn. "Francisco's Money Speech", Atlas Shrugged. Random House, 1957.
Rand, Ayn. "What Is Capitalism?", Capitalism: The Unknown Ideal. New American Library, 1966.
Greenspan, Alan. "Gold and Economic Freedom", Capitalism: The Unknown Ideal.
Mises, Ludwig von. The Theory of Money and Credit. 1912.

External links

Money at the Ayn Rand Lexicon