Menger vs. Chartalism: What Evidence Should Money Theories Require

How does money come about? Did someone invent it, or did it spontaneously emerge as a medium of exchange? The Austrian School of economics gets this question right, and the evidence is on its side.

The following article was originally published by the Mises Institute. The opinions expressed do not necessarily reflect those of Peter Schiff or SchiffGold.

In 1892, Carl Menger wrote On the Origins of Money—the original basis of Austrian monetary theory. This essential work lays out a theory as to how monies emerged through voluntary human action and exchanges on a free market. Menger also critiqued other monetary theories—money from social compact or civil edict—as unhistorical. He wrote,

Nevertheless it is clear that the choice of the precious metals by law and convention, even if made in consequence of their peculiar adaptability for monetary purposes, presupposes the pragmatic origin of money, and selection of those metals, and that presupposition is unhistorical….

…no historical monument gives us trustworthy tidings of any transactions either conferring distinct recognition on media of exchange already in use, or referring to their adoption by peoples of comparatively recent culture, much less testifying to an initiation of the earliest ages of economic civilization in the use of money.