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Carl Menger (1840 – 1921) was an economist and founder of the Austrian School of Economics. In 1892, he wrote On the Origins of Money, where he argued that money is not created or sanctified by the State, but instead money naturally emerges from the marketplace. What follows are my notes.

foreward by douglas french

  • Following Keynesian guidance, central banks fulfill the funding needs of politician for political ends
  • Governments don’t create money, the marketplace does.
  • Individuals decide the best good for a medium of exchange.
  • Menger laid a foundation for Mises, Hayek, and Rothbard.
  • Free markets don’t exist under state-controlled money


  • The emergence of a given commodity as a medium of exchange is mysterious – no government decree, to trade group decision – it just happens naturally.
  • Problem of the Genesis of a Medium of Exchange (MOE)
  • Coincidence of wants, barter, saleableness
  • The theory of money depends on a theory of the saleableness of goods.

commodities are more/less saleable

  • The price at which you can buy a commodity and turn around and sell it are different.
  • The price is subject to the “economic situation” at “economic prices” (market conditions and prices).

causes of saleableness across commodities

  • How saleable a commodity is depends on: the number of people interested (demand), their purchasing power, the number of units for sale (supply), divisibility, how developed the market is, political/social restrictions
  • Saleability across space: degree of interest in a location, transportability, how developed arbitrage markets are, trade restrictions (tariffs)
  • Saleability across time: durability, cost of storage, interest rate, speculation, markets, political/social restrictions

genesis of media of exchange

  • People’s typical interest to trade less saleable commodities for more saleable commodities
  • The origin of money is the spontaneous outcome of the efforts of individual people who daily engage with different commodities and their degrees of saleableness.
  • Money is a commodity with the distinction of giving us the ability at any moment to buy any other commodity at the best market prices.
  • Ordinary commodities will simply trade uncertainly for other commodities in terms of timing and price.

how precious metals became money

  • Primitive cultures valued metals for utility, beauty, ornamentation.
  • Previous metals are naturally scarce, well-distributed geographically, demand > supply, relatively low cost of transport, durable, relatively cheap to store (hoard), fungible, divisible, low stock-to-flow ration
  • Metals homogeneity another great feature that improves fungibility.
  • Gradually, people skilled in bartering realize these strong attributes and favor metals in their trading (early adopters) … eventually it catches on.

influence of the sovereign power

“Money has not been generated by law. In its origin it is a social, and not a state institution.”

  • All economically advances nations accepted precious metals as money before issuing their own fiat.
  • States, however, can help to perfect and adapt to the evolving needs of commerce in maintaining the public confidence in commodity money (gold): upkeep of coinage, accuracy in weight/fineness/quality