Carl Menger and the Origin of Money¶

Carl Menger (1840–1921) was an Austrian economist and the founder of what became known as the Austrian School of economics, established primarily through his 1871 book Principles of Economics (Grundsätze der Volkswirthschaftslehre). His theory of money's origin, developed most fully in his 1892 article "On the Origin of Money," is the intellectual starting point for the whole tradition of Austrian monetary theory covered in this section, and it is frequently invoked, sometimes carelessly, in Bitcoin discussions. This chapter covers what Menger actually argued, using his own words, and states plainly what he did not and could not have said: Menger died in 1921, eighty-eight years before Bitcoin existed.

The question Menger was answering¶

By the late 19th century, economists broadly agreed that money was useful, but explanations for how it came to exist varied. One common view treated money as a deliberate invention, a state or community consciously agreeing to designate some object as a medium of exchange to solve the barter problem. Menger rejected this as historically and logically insufficient, and set out to explain money as an outcome that could emerge without anyone designing it.

Menger's argument¶

Menger's core claim is that different commodities have naturally different degrees of saleableness (Absatzfähigkeit, sometimes translated "marketability"), how easily and reliably a given good can be exchanged for other goods at a given time and place, without significant loss of value. Some goods are always in demand by a wide range of people; others are wanted only by a narrow set of buyers, at specific times, in specific conditions.

Menger's mechanism: individual traders, acting purely in their own self-interest and without any coordination or agreement, gradually notice which goods are easiest to trade away again later. A trader holding a less saleable good has an incentive to first exchange it for a more saleable good, not because they want to consume that good, but because holding it improves their position for future trades. As increasing numbers of traders independently make this same calculation, the most saleable goods become progressively more saleable, because more people are now willing to accept them, in a self-reinforcing process. Eventually, one or a small number of goods becomes accepted by essentially everyone in the community as a matter of course, and at that point, it has become money.

"There is a economic reason, therefore, for the fact that the less exchangeable commodities among any people should be exchanged for the more exchangeable, that men, in exchanging their goods for others, should endeavour to bring their commodities into a saleable form." Carl Menger, On the Origin of Money, 1892

Menger states this generalizes into a broader statement about money's role:

"If we grasp this, we shall be able to understand how the almost unlimited saleableness of money is only a special case, presenting only a difference of degree of a generic phenomenon of economic life, namely, the difference in the saleableness of commodities in general." Carl Menger, On the Origin of Money, 1892

In this account, money is not the product of a social contract, a lawgiver, or a state decree, though Menger acknowledges that once a good becomes established as money through this spontaneous process, governments have historically stepped in to formalize, standardize, and regulate it (through coinage, legal tender laws, and so on), but the state's role, in Menger's account, is a later, secondary act of formalizing something that already emerged from decentralized market behavior, not the origin of the phenomenon itself.

Why this is called a "spontaneous order" theory¶

Menger's explanation belongs to a broader category of social theory (later developed further by his intellectual successor Friedrich Hayek) that explains complex, coordinated social institutions (language, common law, markets themselves) as outcomes of many individuals pursuing narrow, local self-interest, without any of them intending or designing the resulting large-scale pattern. Money, in this account, is comparable to a well-worn footpath across a field: no single person decided where the path should go, but the accumulated, uncoordinated choices of many individual walkers, each taking what seemed like the easiest route, produced an orderly, efficient pattern collectively.

What Menger did not argue¶

It is worth stating explicitly, since this chapter's own introduction promises it: Menger never wrote about Bitcoin, digital currency, or anything resembling it. His examples of increasingly saleable commodities are drawn from documented historical and anthropological practice, cattle, furs, dried cod, tobacco, salt, and eventually the precious metals, gold and silver, which he treats as the historical endpoint of the saleableness process in most economies he examined. Any claim that Menger "predicted" or "would have endorsed" Bitcoin is a later interpretation, not something in his own text, and this book treats such claims as interpretation, addressed directly and critically in Austrian Economics and Bitcoin.

What Menger's framework does provide, legitimately, is an analytical lens later writers have applied to Bitcoin: does Bitcoin's saleableness (its ease of being accepted and re-exchanged) increase as more people hold and accept it, the same self-reinforcing dynamic Menger described for gold and cattle? This is a testable, empirical question about Bitcoin's actual adoption pattern (covered in Network Effects in Money), not a question Menger's own writing answers, since the object being analyzed did not exist in his lifetime.

Common misconceptions¶

Menger's theory does not claim gold is money "by nature" in some absolute sense. His argument is comparative and historically contingent: gold and silver won out over cattle, salt, and other historically used commodities because of specific properties (durability, divisibility, portability, and so on, see What Is Money?) that made them more saleable in the specific conditions of the societies that adopted them, not because of an inherent metaphysical status.

Menger was an economist, not a political ideologue advocating any specific policy for Bitcoin, gold, or anything else. His 1892 article is a work of positive economic theory (explaining how money arises) rather than a normative argument about what monetary policy governments should pursue, that normative project is more associated with his later successors, particularly Mises and Rothbard, covered in the following chapters.