[Formendacil]

I would explain it, thought it is speculation, thusly...

The Bagginses, as we are shown by Tolkien, were an aristocratic family, of the same nature as the Tooks, Brandybucks, Bracegirdles, Sackvilles, indeed, most of the big families we are given reference to in the Books.

These large families each, in origin, had their own homeland. Some families, the Tooks and the Brandybucks are notable here, continued to live mainly in their homeland, but it is said of the Bagginses that they were somewhat dispersed by the time of Bilbo- but we are told that their homeland was in the centre of the Shire, about Hobbiton and Bywater.

Now, I relate this tidbit of Hobbit history to show that the great hobbit families had homelands. And who was the head of the Baggins family? Bungo Baggins, followed by his son Bilbo, followed by his heir Frodo- who usurped the place of Otho Sackville-Baggins, whom we are told had the rather greedy desire to be head of two families: the Sackvilles and the Baggins (and would thus have become, amusingly, Otho Baggins-Sackville-Baggins).

So, the great families have homelands and they have heads. I consider these points of information to be important, because it seems likely that, in origin, the lands of each great family were owned by the family- who's head would therefore have been, as head of the family, the ultimate owner of the land.

Now, this would probably have changed by the time of Bilbo and Frodo- to use Tolkien's statement of the Baggins have become somewhat dispersed as evidence. However, if we assume that the Baggins head still retained a certain ownership in the lands that were once the Baggins homeland, then it doesn't seem all that unlikely that he received a nominal fee or tithe from the people who actually farmed the land.

And so I would explain how Frodo had an income without actually working. He was the chief landlord in a very fertile and product region, and even nominal fees would keep him satisfied.

Obviously, I believe the Hobbits at this time had currency. They did in Bree, evidently, and I see no reason for the much larger Shire to not have had the same.