Tuesday, November 6, 2012

Menger’s Nuanced View on the Origin of Money

Carl Menger’s writings on the origin of money contain a curious, but undeveloped, concession to chartalism.

First, there was this concession in Menger’s 1892 paper:
“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.” (Menger 1892: 250).
Secondly, in Menger’s revised essay on money, published later in 1909, we have this:
“Commodities that have become generally used intermediaries of exchange, if only within certain geographical boundaries and possibly even only within certain segments of the population of a territory, are called money (livestock money, shell money, salt money, etc.) in scientific usage (not necessarily in everyday life!).

Like other social institutions, the institution of intermediaries of exchange, which serves the common good in the fullest sense of the term, may, as I shall explain later, emerge or be promoted, but also impeded, in its automatic development by the influence of authority (for example, public or religious) and especially by legislation. This manner of emergence of media of exchange, however, is neither the only nor the earliest one. Here, a relation exists similar to that between statute law and common law: media of exchange originally emerged and eventually, through progressive imitation, became generally used not by way of law or agreement but by way of 'custom', that is, through similar actions, corresponding to similar subjective impulses and similar intellectual progress, of individuals living together in society (as the unreflective result of specific individual strivings of the members of society) – a circumstance which subsequently, as with other institutions that arose in like manner, does not rule out, of course, their being established or influenced by government.” (Menger 2002: 33).
It would be a mistake, however, to press these cautious statements too far: Menger remained an advocate of the barter spot trade theory of money’s origins, although he was willing to concede what later Austrians have emphatically denied.

Nevertheless, there is a divide between Menger’s nuanced view of the origins of money and the stridency of Rothbard:
“[sc. Mises’s] Regression Theorem also shows that money, in any society, can only become established by a market process emerging from barter. Money cannot be established by a social contract, by government imposition, or by artificial schemes proposed by economists.” (Rothbard 2009: 61).

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. 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.].

Rothbard, M. N. 2009. The Essential von Mises. Ludwig von Mises Institute, Auburn, Alabama.


  1. The author of this blog has recently commented on my blog, after a long spell of not commenting. You may find the debate interesting and it can be found here:


    Apologies in advance for my slightly frustrated tone which is resultant from history.

    1. And I am happy to direct any interested readers to review that debate.

      Nor are your comments unwelcome here.

  2. I have had some heated debates concerning this issue. His 1909 article "Geld" is indeed an article that Austrians fail to read, probably because Menger endorses the state providing for coinage. And as I have pointed to you in the past, some have even claimed him to have socialistic tendencies because of his view on who should supply the coinage in society.

  3. Notice that Menger uses the terms intermediary of exchange and media of exchange to describe what could be created by governments. Rothbard is talking about money which while thought of as a media of exchange is more than that. Money is the most tradable commodity as determined by the market process. Market process does not exist so much with the creation of a MOE like the dollar. For one thing, people are forbidden to use anything else by the issuing government.

  4. "For one thing, people are forbidden to use anything else by the issuing government."

    No they are not. That is a complete myth.

    People tend to use the state money within an area that is under strong influence by that state because it makes life easier.

    Here in the UK we don't really use the Euro, but it is not banned and HM Treasury even allow you to pay your taxes in it (notionally - since it is converted on the fx-market by HM Treasury).

    We have lots of local currencies, Lets points and supermarket loyalty vouchers expressed in Sterling.

    So even with a vast continent next to the UK which trades in Euros there has been little move to Euros within the UK. Yet no ban on doing so.

    So there are other forces that determine which currency people use day to day.

    1. Your are wrong mister Neil Wilson.

      People being actively banned is not necessary if you have legal tender and tax payments in a money. Then the money in question, will be forced on people by way of economic law.

      It is a use of legislation to use the forces of the market into forcing people to use a certain money.

      If you sincerely believe this is a myth, then let us abolish legal tender for public and private debts.

      "We have lots of local currencies, Lets points and supermarket loyalty vouchers expressed in Sterling."

      These are not money.

  5. "These are not money"

    Why can I buy stuff with them then?