The taxpayer-funded economists, so-called financial experts, academicians, and gurus have made even many time-tested laws of economics controversial. However, the supply and demand principle and dangers of tariffs are still held as non-controversial for the most part, across the board, regardless of the school of thought and ideology. Some so-called economists have been trying very hard to exempt certain commodities like money and currency from the firmly proven principle of supply and demand. It is all in vain because the history and evidence are not with them. They easily get some cheerleaders in corporate media, politics, and bureaucracy; none of us can change the laws of nature. You are free to jump off the sixth floor, but you will also have to bear the consequences if you overlook the natural laws of gravity.
Supply and demand determine the value and prices of everything. That is why price controls always fail. Prices cannot be set at will. Natural laws and principles determine those. Price signals are also vital in economic calculation and the proper allocation of scarce resources. That is why Socialism always fails, as well. In a centrally planned economy like socialism where one entity, i.e., the government, with no competition allowed, controls everything, the consumers have only one choice in most cases. Cost determination becomes impossible since all raw materials are owned by one entity that pays the labor, too. When these products hit the retail counters, the retailers and consumers do not have any means to determine the price.
When no one knows how much anything costs and how much it should be priced, the central planners lose the signals determining the proper resource allocation. It is all at the discretion of a few central planners to decide on behalf of millions of people. History has shown, and Mises ingeniously predicted in the 1920s, that it is impossible and hazardous. When entrepreneurs decide about raw materials, sources of materials and parts, labor, production processes, distribution, and supply, they get clues from the vast market around them. Which materials and parts and from where must be used to create the final product, keeping the demand and potential pricing in mind? They also decide how many versions and models should be made to cater to different segments of populations.
Central planning does not have any of these helping factors available. Demand and competition also derive creativity, innovation, improvements, changes, entrepreneurship, and business. Producers and providers must continuously resort to improvements, variations, and changes to sell, maintain market share, grow, and prosper. The monopoly of central planners also limits these incentives. In markets, manufacturers and providers must keep customers happy, and they can only do this by providing the most competitive products and services. Central planners do not have to be competitive because there is no competition, and they have the power of enforcement, which retailers do not have. Retailers must convince customers that they have the best options at this store regarding pricing, variety, and quality.
In markets, bad products ultimately end up in the trash. In central planning, those are pushed down the throats of the consumers.
The medium of exchange, aka money and currency, makes trade possible, especially in modern complex and global economies. Just imagine that money does not exist, and you are a writer who needs flour. But the flour seller is not interested in your writings. He is looking for the salt instead. How are you going to get the flour that you need badly? If you are lucky, someone may be selling salt, and he is interested in your services. You sell your services for salt and then use that salt to buy flour. In this case, salt becomes the medium of exchange. Suppose many people gradually realize exchanging salt for different things and services is easier. In that case, salt ultimately becomes the medium of exchange or money in that society. Throughout human history, various societies at other times have used many different mediums of exchange.
However, gold and silver were established by gods in Sumeria as the media of exchange to a great extent; these did not maintain that status in many places at different times. Those places had gone through a long and tortuous learning curve. Due to unmatched qualities like durability, portability, value, divisibility, and unique supply and demand, they ultimately became globally established mediums of exchange. These were accepted almost everywhere in the world. Historically, most coins in circulation have been issued by jewelers and banks. Notes also used to be issued mainly by private issuers. Notes made money even more portable. All notes used to be redeemable in gold on demand. So, technically, the bearer carried a predetermined quantity of gold. Realizing that only a small proportion of issued notes is redeemed at a given time, jewelers and banks introduced fractional reserves.
They started keeping only a fraction of gold in reserves. This also resulted in bank runs at times of crisis, when every depositor was scared off by banks running out of gold and tried to redeem notes before everyone else. In this scenario, the bank would run out of gold and default. The remaining depositors would be left in cold water, holding the bags. Fractional reserve banking also gave rise to loans, credit, and saving accounts. Banks would loan a certain proportion of bank deposits and pay depositors interest on deposits to share the risk. This did not stop the bank runs, though. Some depositors would like to take the risk attached to the interest payments, while others would deposit only in banks with 100% reserves. The competing notes from different banks would keep each bank in line.
Later, as usual, governments made excuses for standardization, uniformity, and guarantee and took over the supply and issue of money. Still, they could not compete with private issuers, so they started making monopolizing laws, like the one requiring tax payments to be acceptable only in government-issued money. Government monopoly, as always, came with several devastating results. With all competition knocked out by law, governments soon started debasing money to fund warfare, welfare, and cronyism.