A Note on Menger on the Nature and Origin of Money

The writings of the Austrian economist Carl Menger on money extend well behind his classic article of 1892, and include the following:

Menger, C. 2007. Principles of Economics (trans. Grundsätze der Volkswirtschaftslehre [1st edn. 1871] by J. Dingwall and B. F. Hoselitz), Ludwig von Mises Institute, Auburn, Alabama. pp. 257–285.

Menger, C. 1892. “Geld,” in Handwörterbuch der Staatswissenschaften (vol. 3). 730–757.

Menger, C. 1892. “On the Origin of Money” (trans. C. A. Foley), Economic Journal 2: 238–255.

Menger, C. 1909. “Geld,” in J. Conrad et al. (eds.), Handwörterbuch der Staatswissenschaften (vol. 4; 3rd edn.), Fischer, Jena. 555–610.

Menger, C. 1923. Grundsätze der Volkswirtschaftslehre (2nd rev. edn.), Hölder-Pichler-Tempsky, Vienna.

Menger, C. 2002 [1909]. “Money” (trans. L. B. Yeager and M. Streissler), in M. Latzer and S. W. Schmitz (eds.), Carl Menger and the Evolution of Payments Systems, Edward Elgar, Cheltenham, UK. 25–108. [N.B. this is a translation of Menger 1909.].

Menger’s treatment of money developed in the course of his life, and I have always had the impression that his view of the origin of money was not as extreme and dogmatic as later Austrians like Mises and Rothbard.

Even in 1892, Menger made a most curious concession at the beginning of this crucial passage (highlighted in yellow):

“It is not impossible for media of exchange, serving as they do the commonweal in the most emphatic sense of the word, to be instituted also by way of legislation, like other social institutions. But this is neither the only, nor the primary mode in which money has taken its origin. This is much more to be traced in the process depicted above, notwithstanding the nature of that process would be but very incompletely explained if we were to call it ‘organic,’ or denote money as something ‘primordial,’ of ‘primaeval growth,’ and so forth. Putting aside assumptions which are historically unsound, we can only come fully to understand the origin of money by learning to view the establishment of the social procedure, with which we are dealing, as the spontaneous outcome, the unpremeditated resultant, of particular, individual efforts of the members of a society, who have little by little worked their way to a discrimination of the different degrees of saleableness in commodities.” (Menger 1892: 250).

Of course, Menger’s main theory is that precious metals have arisen as a medium of exchange among many peoples because “their saleableness is far and away superior to that of all other commodities” (Menger 1892: 252). Yet he also recognised the “important functions of state administration” in creating coinage and creating public confidence in the “genuineness, weight, and fineness” of coined money (Menger 1892: 255). Another important point is that Menger held that the government reduces the uncertainty associated with “several commodities serving as currency” by official legal recognition of some commodities as money, or where more than one commodity money exists by fixing a definite exchange ratio between them (Menger 1892: 255). In this way, governments have perfected precious metals in their function as money (Menger 1892: 255).

It is curious that the 2nd edition of Menger’s Grundsätze der Volkswirtschaftslehre (Vienna, 1923) has apparently never been translated into English, so his final thoughts on the nature of money require a reading of that book in the original German.

In 1892, Menger published an article on money (or “Geld” in German) for the Handwörterbuch der Staatswissenschaften, and this was revised in 1900 and 1909.

By the time of the 1909 article on money, Menger had expanded and rewritten his comments and had added a section called “The Perfecting of the Monetary and Coinage System by the State” (Menger 2002 [1909]: 45–48). In discussing the advantages of a uniform state minted coinage, Menger even remarks that “in recent times, private coinages have met the general requirements of trade only imperfectly” (Menger 2002 [1909]: 46). And while opposing legal tender law as necessary from an economic point of view, nevertheless “in certain cases the needs of trade seem to permit and occasionally downright to require not only some sort of government intervention but specifically the declaring of particular kinds of money as legal tender” (Menger 2002 [1909]: 82). Menger uses decidedly utilitarian ethical reasoning in concluding that legal tender law can be justified (Menger 2002 [1909]: 82–83).

All this suggests that Menger’s thought on money was more subtle and less extreme than that of some modern Austrians.

BIBLIOGRAPHY
Menger, C. 2007. Principles of Economics (trans. Grundsätze der Volkswirtschaftslehre [1st edn. 1871] by J. Dingwall and B. F. Hoselitz), Ludwig von Mises Institute, Auburn, Alabama. pp. 257–285.

Menger, C. 1892. “Geld,” in Handwörterbuch der Staatswissenschaften (vol. 3). 730–757.

Menger, C. 1892. “On the Origin of Money” (trans. C. A. Foley), Economic Journal 2: 238–255.

Menger, C. 1909. “Geld,” in J. Conrad et al. (eds.), Handwörterbuch der Staatswissenschaften (vol. 4; 3rd edn.), Fischer, Jena. 555–610.

Menger, C. 1923. Grundsätze der Volkswirtschaftslehre (2nd rev. edn.), Hölder-Pichler-Tempsky, Vienna.

Menger, C. 2002 [1909]. “Money” (trans. L. B. Yeager and M. Streissler), in M. Latzer and S. W. Schmitz (eds.), Carl Menger and the Evolution of Payments Systems, Edward Elgar, Cheltenham, UK. 25–108.