An advanced economy’s demands on the monetary system are not to be met by a system such as develops automatically. -Carl Menger
First off, hat tip to Jon Catalan for bringing this issue and the set of links to my attention.*
I have always been amazed that a good amount of Menger’s work has not been translated. And those that have been translated for references are not widely known. Indeed Menger’s Principles of Economics, Investigations into the Methods of the Social Sciences, and his article “On The Origins of Money” are important books/articles to read. Both Principles… and Investigations… are the origins of the Austrian framework.
But there are a handful of scholars that have translated some of Menger’s less popular works, including his second edition of Principles with his hand written notes, which unfortunately are slowly fading away, given that a lot of his notes were written in crayon.** Here is a great resource on some translations .
All this said though, I want to comment on the recent article in The Economist. The author states the following about Menger’s theory***:
Money evolves to reduce barter costs, with some things working better than others. The commodity used as money should not lose value when it is bought and sold. So clothing is a bad money, since no one places the same value on second-hand clothes as new ones. Instead, something that is portable, durable (fruit and vegetables are out) and divisible into smaller pieces is needed. Menger called this property “saleableness”. Spices and shells are highly saleable, explaining their use as money. Government plays no role here.The origin of money is a market-led response to barter costs, in which the best money is that which minimises the costs of trade. Menger’s is a good description of how informal monies, such as those used by prisoners, originate.
One important part of the story that Menger left out is the pervasive, though not necessarily exclusive, role of the state in the development of money.
I want to put into consideration on what some of his lesser known articles state. Also, an article worth reading is “Carl Menger’s Monetary Theory: A Revisionist View” by Yukihiro Ikeda which contains the passages I am about to cite. Indeed, as Ikeda notes in his article, Menger did in fact include an active role of the State in his monetary theory. The above Menger quote is from his 1909 article “Geld”. Following this quote, Menger states:
Above all, wide experience has shown that coining the monetary metals, as soon as and insofar as this proves necessary for the economy, makes government intervention more and more inevitable. The costly supplying of the markets with coined metals appropriate (in kind and quantity) to the requirements of the economy is certainly in the interest of both individuals and the economy as a whole; but, as experience shows, it cannot be expected from a country’s individual economic units, which are under the pressure of competition and are dependent on and oriented toward profit.
Also, Menger states:
But experiences on the markets of those peoples who, up to most recent times, had not yet achieved an orderly system of coins show us how inadequately the disadvantages inherent in the circulation of uncoined metals were overcome by the above automatic development. The test of weight and especially of fineness by the assayers active on these markets prove unreliable and, seeing how easily the stamps of these functionaries may be counterfeited, have to be repeated, as a rule, with every transaction, a circumstance that make payments highly time-consuming and costly.
The 1909 article has two major conclusions: 1) Coinage should be supplied via government because 2) private coinage is unreliable
There is also a third conclusion though, 3) legal tender is “simply reprehensible.” This is important to note, just because he thought of government as having a role in monetary system, he did not advocate legal tender laws. Or as Ikeda notes, “…Menger believes in the fundamentally automatic development of the monetary system, but admits the necessary role of the state in advancing the development of the system. ”
I understand that the article on The Economist and Glasner’s interpretation of Menger’s theory primarily come from “On The Origins of Money”, but critics of Menger have to take into consideration that Menger dealt with these exact criticisms and revised his work.
*I would have written a brief comment on his blog, but my iPhone seems to hate his comments system… Yes, most of the stuff I do in the blogosphere and my blog is done through the iPhone.
** Also, some of the works that have been translated, are translated in Japanese.
***The article misspells Carl Menger’s name, they spell it Karl not Carl. This might be nitpicking on my part but it should be noted. Karl Menger, with a ‘K’, is in fact the name Carl Menger gave his son, who turned out to be a famous mathematician. He also is responsible for publishing his father’s second edition of Principles