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Source link: http://archive.mises.org/4532/menger-on-money/

Menger on Money

January 6, 2006 by

New in the Study Guide: “On the Origin of Money” by Carl Menger (1892)

{ 7 comments }

Paul Edwards January 6, 2006 at 6:31 pm

Good Austrian insight from Menger:

“Money has not been generated by law. In its origin it is a social, and not a state institution. Sanction by the authority of the state is a notion alien to it.”

Needed more work:

“On the other hand, however, by state recognition and state regulation, this social institution of money has been perfected and adjusted to the manifold and varying needs of an evolving commerce, just as customary rights have been perfected and adjusted by statute law.”

Also, needed more work:

“…The fixing of a coinage so as to include all grades of value (Wertstufen ), and the establishment and maintenance of coined pieces so as to win public confidence and, as far as possible, to forestall risk concerning their genuineness, weight, and fineness, and above all the ensuring their circulation in general, have been everywhere recognised as important functions of state administration.”

Thank goodness the Austrian school progressed and continues to progress today. We now realize not only that “Sanction by the authority of the state is a notion alien to [money]“, the state is capable only of debasing, mangling and maladjusting it and it can be maintained more genuinely if left entirely in the hands of the free market. It is cool to watch as our Austrian insights expand based on the older Austrian axioms.

Dennis Sperduto January 6, 2006 at 8:04 pm

My understanding of the historical context of Menger’s article is that not only was it written as an explanatory, theoretical contribution to economics, but also as a refutation of the German Historical School, which in its overriding desire to glorify the German government, uncritically and unscientifically argued that money was the creation of the state. In an insidious way, the German Historical School’s relation to and glorification of the German government foreshadowed the situation of much of the modern “economics profession”, but without the veil of sophisticated mathematics to lend the appearance of scientific objectivity.

Paul is absolutely correct in his observation that the insights established by the early Austrians have been expanded and in some cases revised by their successors. In the area of Austrian monetary theory, Mises’s expansion and elaboration of, and in certain critical areas revisions to, Menger’s important work are foundational. Even so, specific tenets of the Misesian (and Rothbardian) monetary framework have been challenged in two recent journal articles by Professors Block and Barnett.

Paul Edwards January 7, 2006 at 12:15 am

It seems Mises improved on Menger’s view of how the state handles money. I also think Rothbard improved on Mises’s view on how the state handles defense and the courts. And it seems Hoppe and others are pushing things still further. It is fun to be right here as it all continues to happen.

BTW, “Even so, specific tenets of the Misesian (and Rothbardian) monetary framework have been challenged in two recent journal articles by Professors Block and Barnett.”

Dennis, are you referring to the article on the utility of an expanding money supply in a free market? That was an outstanding article. I never thought Mises and Rothbard would be mistaken on the same point, but that article convinced me they were.

Sasha Radeta January 7, 2006 at 1:40 am

Menger’s greatness is in his theory of value, which is the only useful Austrian framework for tax-issues and probably the best piece of price theory.

Menger believed that state control of coins is necessary to ensure quality standards and manipulation with alloys of gold and other metals – that would actually increase money supply and cause inflation. Menger wrote this in 1892, before he could see the German hyperinflation and before he could see more clearly that democratic control of the government’s actions is not as efficient as the market control – only the products of trustworthy goldsmiths, caring for their reputation and survival, would be selected by markets as the media of exchange.

PS
What’s the name of that article by professors Block and Barnett?

Sasha Radeta January 7, 2006 at 2:06 am

Correction: and to prevent any manipulation with alloys…

Dennis Sperduto January 7, 2006 at 9:22 am

Paul and Sasha,

The two articles by Professors Block and Barnett that I referred two in my earlier posting, but did not site, are: “On the Optimum Quantity of Money” (QJAE, Volume 7, Number 1): and, “Money: Capital Good, Consumers’ Good, or (Media of) Exchange Good?” (RAE, Volume 18, Number 2).

Again, I do not believe these articles contain wholesale revisions to the Misesian/Rothbardian monetary framework, but present challenges to specific points. While I have not really studied (as opposed to read) these articles and am not 100% certain that I fully agree with the implications of both articles, they are certainly thought provoking. Moreover, they represent scholarly research conducted within the praxeological and Misesian/Rothbardian monetary frameworks. This type of research reinforces, expands, and maybe even revises certain aspects of the body of economic knowledge. Compare the excellent monetary studies of Professors Block and Barnett to the dribble from the likes of Paul Krugman or Ben Bernanke or the multi-faceted irrationality of Keynesian economics.

Paul Edwards January 7, 2006 at 5:12 pm

Dennis,

Thanks to you, i have discovered and now read “Money: Capital Good, Consumers’ Good, or (Media of) Exchange Good?” and i can say it is very convincing; as convincing to me as “On the Optimum Quantity of Money” was.

It is always exciting to me to see Austrian theory refined and improved.

As an aside, it is interesting to note that this paper reflects Block’s change of opinion on the subject. I can count on one hand the instances of which I am aware of major contributors to Austrian theory changing his mind. That in itself makes this article kind of cool.

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