What is the economic concept of money and credit?

In in a dissertation paper about the theory of money and credit professor Ludwig Von Mises makes many insightful arguments, his paper was published by Yale University Press in 1953, and today, the principles dissected remain unchanged.

The economic theory of money is generally stated in a terms that are not economic but jurisprudence. This terminology has been updated by merchants, judges, and others whose interests have legal tenders characteristics as well as their substitutes. In earlier times coins circulated by weight and not by count but money nowadays consist of specific units of value that is assigned to them by law. The standard units of value mean the many names given to currency such as francs, marks, dollars etc., that might have been adopted as measures of value.

The value of money is however, determined by the State, by statute, by the legal system ignoring the most -important facts of monetary history; the artificial network fallacy that collapses upon the question: What exactly are we to understand by a unit of value of such money? But these questions can only make sense to those who are aware of the theory of prices. Mises states that money is neither a production good nor a consumption good and fluctuations in the objective exchange value of money is induced by changes in the ratio between the supply and demand for it given by the Total Volume of Transactions + Velocity of Circulation (velocity=the number times the same currency is used in a period of time). For a definition of the demand for money an individual must start with the considerations that receiving and paying out money stops when the public loses faith in an issuer of fiduciary currency at a time of crisis, and when the fiduciary media ceases to have circulation value. Many examples of this sort are known in history like the experiences of the United States in the late 1907, Germany in the late 1930’s and other more recent cases like Venezuela. In all the branches of economic the most studied is money which also has the longest history and the most extensive literature. The elements of the “Quantity Theory” were established at a time when speculation and other types of economic problem had yet began cataloging. When ‎John Maynard Keynes published his Treatise on Money in 1930 he lamented the absence, not only of an established tradition of arrangement, and of a systematic treatment of the subject on a scale and of a quality comparable with that of the standard discussions of the central problems of “pure equilibrium theory”. It states that ‘the balancing of production and consumption takes place in the market, where the different producers meet to exchange goods and services by bargaining together’. In these actions of the market the function of money is to facilitate the transactions that take place by acting as a common medium of exchange. In such arrangement the functions of money is to transmit value through time and space.

In this particular category money is being used as a price index and commodity credit. Then there is Fiat money which is the currency that a government declares to be legal tender, but it is not backed by any physical commodity. The value of fiat money results from the relationship between supply and demand rather than the value of the material from which this money is made. The law regards money only as a means of cancelling outstanding obligations that has important consequences for the legal definition of money.

Cooperating jurists supported the attempts to discover a philosophical basis for the right of kings to degrade the coinage and to prove that the true value was that assigned to them by the ruler of the country. But as mentioned before money is neither a production nor a consumption good furthermore, this same assertion is to be made to the means of transport among instruments of production on the basis that transport is not in its self an act of production but a means of transfer and that the nature of goods is not altered by transportation any more than by a change of ownership.