No. 8508
MONEY: MENGERS'S EVOLUTIONARY THEORY
by
Gerald P. O'Driscoll, Jr.
Research Department
Federal Reserve Bank of Dallas
Research Paper
Federal Reserve Bank of Dallas
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library ([email protected])
No. 8508
MONEY: MENGERS'S
EVOLUTI0NARY
THEORY
oy
GeraldP. 0'Driscol1, Jr.
Research Department
Federal ReserveBank of Dallas
December1985
NOTFORQUOTATION
OR ATTRIBUTION
WITHOUT
AUTHORIS
PERMISSION.
COMMENTS
AREWELCOME
* The vievs expressed in this article are solely those of the author, and
should not be attnibuted to either the Federal ReserveBank of Dallas or
to the Federal ReserveSvstem.
INTRODUCTION
Carl
Menger is
and the
founder
years,
there
work.
Some of
best
of
in
the
this
interest
essay,
I
Mengerts
of
of
the
approach,
demand for
governrnent.
Since
of
Mengerrs
bv the
of
centennia!-
with
at
of
controversy
which
noney,
which
argue
is
School
especial-Ly
In
this
less
well
be1ow, however,
as inportant
as his
monetary
Menger's
analysis
over
legal
restrictions
renewed
appreciation
the
us with
noninterest-bearing
theoretical
-1-
views,
mi c r o f o u n d a L i o n s o f
constitutes
Mengerrs
As I
least
relevance
provide
general-
this
individualisrn.
work.
the
rnoney should
the
theory
in
theory
of
recent
work
the
Mengerts
in
i.n Menger. The nodern Austfians
methodologlcal
money is
instance,
of
fifteen
on Mengerts nethodological
Recent
hightens
last
of the Austrian
the revival
nethodological
theory
nethodology.
theory
Coincidental
interest
exarnine Mengerts
his
the
interest
was stir[ulated
the Marginalists,
statement
known than
of
In
marginalisn
of
1
have focused chiefly
early
codiscoverer
School.
Revolution.?r
has generated specific
his
Austrian
has been a renaissance
the rtMarginalist
interest
known as the
of
an alternative
liabilities
money.'
,o.
for
explanataon
of
the
and methodoloeical
federal
work
are Ehe foundation
of his
the next. section.
After
origin
his
nonetary
that,
I
analysis,
with
review
these in
of
examine Mengerrs theory
and developnent of a medium of
theory
I
exchange.
the 1egal restrictions
I
I
theory.
an assessment of the Mengerian contribution
the
then contrast
conclude with
to monetary theory.
MICROANALYSIS
I
interpret
against
the
Ricardian
participants
Marginal
uEili.ty
rrMarginat
Economics.
revolution
in
took
in
England
Austria,
and America,
general
and the
the
observed,
forms:
distinctive
early
anong the
As Mark Blaug
three
revolt
as a microecononic
The differences
lrere important.
Revolution
revolution
Revolutiontt
the
I'the
marginal
subJectivist
equilibriurn
revolution
in
tL
Switzerland
and Italy."
would
gloss
be to
To treat
over
important
the
three
approaches
obscuring
differences,
as one
the
.l
distinctiveness
of
each contribution.
nicroeconomic
thread
running
through
Nonethless,
the
work
of
there
the
is
three
a
great
narginalists.
As a general
microecononic
Menger and Walras
was never
revolution,
brought
-2-
to
the
work
fruition.
of
Jevons,
Large
areas
were
effectively
ceded to
orthodox
econonists
natural,
dictated
by the
realn
Lhinking
in
of
of
the
1870's,
exists
Menger
work
shares
contribution
that
the
Mengerts
t.hree great
is
that
were.
content
of
accounts
divis j-on as
I
contribution.
of
a nacro
the
for
homogeneity
whatever
fate
the
of
What is
having
had his
one cou1.d say
now turn,
has been least
spiri!
discussed.
modern economics
of
nost
goes against
Nonetheless,
a1l- three.
which
macfo
figures
and l{alras
as it
distinctive
Menger
econonics
of
Jevons
with
thinking,
The acceptance
that
diluted,
work
phenomena.
the
-
nicro
spirit
with
the
way of
the
orthodox
microeconomic
outcome of
about
accepting
the
i.n the
an older
is
joint
the
houever,
to
most distincti-ve
absorbed
into
orthodo).
economics.
Subjectivism
Methodological
Austrian
subjectivisn
contribution
to
is
the
specifically
economics.
Although
Mengerian
Mengerts
or
concern
6
with
disequilibrium
connection
and the
is
not
betrveen his
econonic
generally
because
of
recently
subjectivism
process
--
been emphasized,
and his
a constant
emphasis
state
of
the
on change
disequilibrium
--
made.
A subjectivist
perceptions
economj-cs has
analyzes
these
individuals
all
economic
a thing
events:
believe
it
to
-3-
is
events
in
a good,
be a good.
terrns
for
of
agents r
example,
They make decisions
because
the
of
world,
their
respective
because
11[
beliefs
of
the
about
actual
or
relevant
the
objective
state
staEe
of
of
the
8
world
as
held
thaf
not
seen by the
offer
of
us the
spectacle
of
naking
perfect
knowledge
constructs
the
The perfect
knowledge
assumption
is
with
a phenornenon of
not
constant
an t i s ub j ec t i v i s t
because
it
pervasiveness
change,
transactors
that
Menger
observer.
is
economics.
relevant
as ideal
"there
inconsistent
focus
posing
economist
of
information.
perceptions
informational
perfect
knowledge
that,
correspond
problerns
is
the
an economics
in
econonics
d i s e q u i 1 i b r i u r n,
which
to
conclusion
eliminating
econornic anaJ-ysi.s.
of
characteristic
uncertainty
is
al1
acquired
the
reality,
to
central
the
have already
fron
def ini.ng
a view
despite
leads
rvhich does
world
real
change,rr
The assumption
always
genuine
lmplies
the
is
central
Since
equilibriun,
i.nherently
an
9
emphasis
toward
felt
It
in
on subjectivism,
explaining
price
the
why economists
who followed
is
to
that
cost
or
This
point
suggest
that
while
cost
subjectivism
applies
to
supply
can
side,
best
while
is
is
the
tastes
objective
incornpatible
goes far
Mengerts
the
lead
or
with
subjective
objective
the
factors
be seen by quoLing
-4-
The
have
econonics.
demand is
determination,
determinatioo,
and change.
change and disequilibriurn
modern neoclassicaL
standard
process
narket
uneasy with
price
view
of
element
elenent.
dernand side
are
relevant
to
Menger I s analysis.
hlieser,
who applied
The
of
the
10
Menger I s analysi-s
to
cost
theory.
Between costs and utility
there is no fundanental
oppositlon.
Costs are goods valued,
i.n the individual
case, according
general utility.
to thelr
The
opposition
beLween costs and utiliEy
is only that
between the utility
of the individual
case, and utility
on the who1e.
I{hoever thinks
without
of rutilitvr
thinking
of rcost, t sinpLy neglects,
in the utility
of
one production,
the utility
of the others.
And whoever
produces,
in the individual
case, at least
cost,
produces,
on the who1e, with the hi.ghest utility,
inasnuch as he thus saves all
the opportunity
of
possible,
utility
and consequently
in the long run
utilizes
all
the opportunities
to the utmost possible.
Thus when the law of costs obtains,
the source of ya1ue.
More than this,
renains
the aeasure of value.
Nonetheless,
criticized
of
his
fanous
the Austrians
value
focus
in
or
explanation
on utility
misconstrued
for
of
their
scissors
analogy,
treatlng
utility
alone as the source
arguing
that
price.
In
too
much the
emphasized
utility
remains
marginal
utility
Marshall
demand side,
S c h u m p e t e r' s c r i t i c i s n
position.
the
Austriansr
MarshalL
of Marshall
11
on this
issue
r+as exacLly
to
the
point.
They (the AusErians)
stood in no need of bei.ng told
about the two blades of Marshall's
pair of scissors.
What Lhey ained at showing was that L9![ bl-ades consist
-- that both dernand and supply (no
of the same material
matter whether the case i-s one of exchanging exiscing
commodities or of producing
them) nay be explained
in
tprn<
nf
I'rt_i1i+-
I
I2
Schumpeter
further
observed
that:
pri.nciple
. . .The marginal
uLility
applies
to the
demand and supply sides of the value problem in anv
case, both in the long run and in the short run.
Co"t
is not an independent
of production
principl-e
taking
charge in the long run.
But the marginal
utility
principle,
acting
upon the data of the situation,
will
-5-
in the long run (granting a nunber of assurnptions) so
operate as Eo equate exchange value to cosEs.
neolcassical
Nevertheless,
Marshallrs
synthesis
of
subjectivist
generally
have
econonists
and objec!ive
dernand theory
13
two
types
of
consisLency
wi!h
!0agnitudes
relation
not
It
approach.
Since
perceptions
or
under
'lsubjective.
are
other
the
does not
that
there
concerned
econonic
relevant
it
a technologi-ca1
perceptions'
affect
it
is
is
an objecEive
existence
of
this
reality,
is
being
methodology,
which
is
emphasizes
he
of
Menger
as our
ability
imperfect
at
Menger was thus
perfected.
is,
independent
as well
reality
of
knowledge
reality
an Aristotel-ian,
Being
our
That
subjectivist.
it.
But
a nethodological
though
Menger,
of
moment, even as lt
subjectivist
(be
a'rfactr'
knowledge
it.
apprehend
all
unceriainty,
was no epistemological
noE deny that
affirmed
is
subjectivist
one of
but
relevant.
musL be emphasized
individualsr
t t o bj e c t i v e t ' ,
and
the
r If
condition)
econor[ica11y
subjectivist,
did
r r s u bj e c t i v e t t
factors,
in
otherst
importance of
The question is not one of relative
cost theory,
accepted
to
each
1ed to
Ehe incompleteness
a
of
74
pervading
knowledge
There
of
the
is
every
one more najor
Mengerian
approach.
Mengerrs
theory
of
Menger's
approach
rnoney.
to
rnarket
transaction.
eLement to
Having
In
the
lnstitutional
-6-
be fitted
done that,
next
section,
analysis.
into
I
can
then,
our
then
picture
develop
T develop
Undesigned
Social
As indicated
above,
disequilibrium.
to
Institutions
This
how individuals
inqui,ry
that
Ilayekrs
which
analysis
of
leads
play
derives
system
an
of
Eo a theory
role
in
the
i-n society.
information
f rorn Menger,
price
the
attention
information,
a cruciaL
and use of
and
oners
directs
naturally
inevitably
disseroi-nation
viewpoint,
uncertainLy
and disserninate
InsEitutions
production,
enphasize
emphasis
acquire
alnost
institutions.
This
subjectvists
was fu11y
and in
Misest
developed
in
and Hayekrs
15
work
on econonic
given
to
part,
an effect
calculation.
institutions
i.n neoclassical
shrift
short
The conparatively
economics
is,
at
least
in
16
of
Menger began his
instiEutions
with
institutions
which
sienificant
for
its
not
having
anaJ-ysis
the
f ollor+ing
serve
its
of
the
incorporated
Ehe evolution
subjectivism.
of
social
question:
"Ig.g can it
conmon welfare
and are
develoDnent
being
cone into
be that
extremely
without
a conmon
L7
will
direcred
toward
solution
of
the
sciences
in
general
thus
closely
understanding
nost
irnportant
and of
connected
the
gLd.r'
establishinq
with
origin
the
of
the
theoretical
economics
theoretical
quesEion
and change of
'rThe
As he noted:
problens
of
in
the
sociaL
particular
is
theoretically
I organi-ca11y t
created
l8
social
structures."
"organic{
institutions,
At
the
end of
the
Menger explici-t1y
.|
book in
sets
which
he takes
down what
he
up
beiieved the proper methodto be to addressthe problem-:19
l/e already
alluded
to the fact
that a large number of
the phenornena of economy which cannot usually
be viewed
I created
I social
i e.g.,
as I organically
structures,
market prices,
wages, interest
rates,
etc.,
have come
into
exi.stence in exactly
the same way as those social
insEitutions
which we nentioned
in the preceding
section.
For they,
too, as a rule are not the result
of socially
teLelogical
causes, but the uninEended
result
of innurnerable efforts
of economic subiects
pursuing
individual
interests.
The theoreticil
un d e r s tanE i n g--T-Tt-ern,
t he t he o r e t i c a 1 un d e r s L and i n g o f
thei.r nature and their
movement can thus be attained
in
an exact nanner only in the same way as the
understanding
of the abovernentioned social
institutions.
That is,
it
can be attai.ned by reducing
then to their
elements.
factors
to the individual
of
their
causation, and by invesrifiEii-f,-ilE
the complicaEed
discussion
here
This
is
laws by which
phenomena of hunan economy under
are built
up from these elements.
\,/haL Menger elsewhere
referred
to
as the
'iconpositive"
20
nethod.
built
case
In
up from
for
result
insti
!utional
Menger's
undesigned
contenporary
actual,
conplex
e16hents,
not
of
causes"),
causal analysis
of
characterizing
("not
hurnan design
but
interestsr'),
s!ructures
of
be
Menger articulated
In
innurnerable efforts
of
individual
the need for
the
individualism.
results
telelogical
unintended
that
indi.vidual
as the
socially
pursuing
their
rnethodological
institutions
of
advocating
social
the
hunan actions
the
result
(rrthe
of economic subjects
Menger reminded the reader
the forces
of
producing
change,
emphasis
institutions
on the
crucial
differentiates
econornic thinking,
economj.c problem
inportance
as amenable
which
to
optimal
-8-
his
playecl by
theory
increasingly
control
f rom
sees
analysi,s.
every
Arnong
modern Austrians,
Hayek has
followed
Menger nost
closely
here
by
2L
focusing
on the
Throughout
focusing
closer
their
his
on the
to
work,
method in
lrith
Menger's
monetary
1egal,
peculiar
the
of
to
the
subjective
underlies
the
or
than
evolution
he shared
approach
and nore
fhe
and Lhe subsLance
to
the
-9-
link
of
but
alone
between
his
approach
siAnificance.rl
these
Almost
theory
analysis,
to
most significant
money.
of
individualistic
universal
the
compositive
his
one of
22
much wider
and
and economic
perceived
utility
In
contemporaries
i .n d i v i d u a 1 i s t i c ,
produced
method.
he remained
his
while
application
narginal
insitu!ions.
cornpositive
nacroecononic
Ilayek
econonics
rrthe consistent
But
his
econonics
social
institutions,
political
interpreters,
approach
economics:
social
econony
use of
a theory
arnong Mengerrs
indeed,
of
he rejected
applications:
general
Menger used this
descendan!s.
concern
questions.
undesigned
political
classical
institutions,
of
evolution
intellectual
classical
the
analysis
of
his
monetary
noney
of
which,
which
has a
THE THEORYOF MONEY
It
is
now recognized
incorporate
equilibrium
models, money is
num6raire has no properties
the- "nonnoney
nerely
goods in
""
ef f ects.
Link"d
these
equilibriurn
models
conmodities
cone Eo be exalted
exchange. tt
first
two.
is
their
in
the
These successes
in
principle
from
to
the
latter
disguise.
in
inevitably
is
failings
inabilitv
Menger solved
uni.que properties.
it
nodels
such constructs
rvith
does not
Models in which money is
the node1.
the rrnoneyttin
theory
merely a nurn5raire. The
distinguishing
the nurn6raire good are barter
addition,
its
equilibrium
good with
noney as a distinctive
general
In
general
tha!
of
In
neutraL
general
contemporary
exDlain
"how...certai.n
qeneral
media
problem
and avoided
of
analysis
aLone comnend his
to
Ehe
nodern
25
who,
theorists,
however,
Menger sunmarized
the
are
largely
process
of
of
iE,
t.he evolution
of
unaware
a monetary
26
unit
in
following
the
way:
As each economi-zing individual
becones increasingly
of his economic j.nterest, he is fed by inls
tnore Eifi.
without anv agreement. without legislative
interest.
cornpulsion
;T6'*"t,
other,
a n d e v e n '. r i t h o u t
regard
uo g:.G-iri6-Zoiil5'aiFfEi-:.n
more saleable,
comrnodities,
to
the
public
eicnaffi-Ti'.
even if
in
he does noE
need them for any immediate consumption purpose.
With
economic progress,
therefore,
we can everywhere observe
the phenonenon of a certain
number of goods, especially
those thaE are most easily
saleable
at a given time and
p1ace, becoming, under the powerful
of
influence
custom, acceptable
to everyone in trade,
and thus
capabl-e of being given in exchange for any other
commodity.
These goods were caLLed rrGeldrr by our
ancestors,
a term derived
from ttseltenrt which means to
corpensaEe or pay,
in our
Hence the t eiE-n@]!"
language designates
the means of payi'EiT as such.
In
an analysis
reasoning,
Menger treated
consequence
Indeed,
the
of
is
the
the
after
him .
In
the
the
than
had any who went
analysis
narket
of
fron
econonic
on order,
stocks
of
this
unfinished
evolutionary
context,
a relationship
before
analysis
goods.
and partl"y
stage,
not
stocks
are
the
is
finished
of
stocks
?rinherenL
11
!o
market
the
social
in
use
and
r ^ r h oc a m e
rrTheory
the
upon his
of
more
An economy
production
for
the
on speculation.
increasing
holding
commodities,
finished
this
and nost
Moneyt' follows
of
for
developrnent
is
go further
nonetary
stocks
and
M e n g e rt s c o n s i s t e n !
seI f - s uf f i c i enc y ,
commodi.ties
that
his
production
to
with
Concomitant
holding
of
unintendec
oEher Scottish
But
hirn to
nThe Theory
Principles,
progresses
this
method enabled
as the
M e n g e rI s t h e o r i z i n g
and the
century.
hand
invisible
own self-interest.
their
be!ween
Smith
Comrnodity.I' Menger built
general
final
of
eighteenth
compositive
applications
evolution
pursuing
history
other
Adan Smithrs
some sinilarity
hypothetical
of
of
money's
individuals
there
theorists
of
reminiscent
and,
comnodities.
of
goods intended
in
a good,
for
no property
of
in
the
In
sale,
of
it,
but
roerely
a specific
relationship
a good to
of
person
the
27
who has command of
0nce they
begin
it.il
holding
necessarily
inLerested
saleability
of
stocks.
Mengerrs
rrit
sale,
analysis
Menger
is
not
ordners are
(absatzfahigkeit)
rediscovered
literature.
for
wealth
rnarketability
the
on1y recently
transactj-ons-costs
commodiLy is
in
these
questions
treats
cornmodity sEocks,
of
in
problen
this
the
observed
intended
or
that
for
though
a
sale
t6
The stockholder
llnconditionallv.rt
rapid
possible
Thus,
"nerchants
sale
sluggish
sa1es,
sale
they
...
of
nay
entire
stock,
be jusLified
...
since
are
the
a1!hough
intended
for
economic
dif f eri.ng
for
attempted
to
get
disposing
of
a unit,
price
with
to
that
different
their
commodities
sa1e,
not
idea
approxinaEion
and the
or
buyers.
of
stocks.
the
evaluation
that
of
whole
seller
Mengerrs
analysis
idea.
market.s,
not
-72-
price.
intended
but
for
at
active
not
neither
vrith
of
a conmodity,
is
with
Menger
costliness
of
in
but
He dealt
most
category,
Roughly,
relative
supply
market,"
are
a subjective
r{rere the
a rrperf ect
of
the
the
29
e c o n o r n i cs i t u a l i o n . t r
holders
of
of
aL any price,
is
of
in
compla j-n of
they
situationrt
a neasure
r,Jould obtain
polential
the
at
i.nterested
regardless
if
pri-ces that correspond to the egeral
The rtgeneral
not
is
the
is
aL the
communication
ent j-re1y
it
foreign
a crude
Drocess
some hypothetlcal
of
trade
end
point.
Moreover,
vari.ous
commodities,
--
terns
concerned
becoming
In
in
being
concerned
he was --
to
with
force
his
1es s - t han- per f ec t
with
the
narketability
anlaysis
markets
of
into
that
sLatic
are
more perfect.
Menger's
analysis,
traders
discover
that
sone commodities
30
are
particularLy
words,
these
marketable
commodities
transaction
costs.
commodities
are
tine,
the
they
nore
accept
final
become increasingly
certain
and not
denand for
traders
In
Indeed,
exchange
because
Th6 process
accept
to
saleable
is
of
at
are
less
invest
low
certain
that
discover
others
r,ri11ing
necessarily
them.
wi11ing1y
while
cornrnodities.
conmodiLies
disposed
eventually
more narkeLable
1n other
acceptable.
can be quickly
Transactors
marketable
marketable,
and widely
so.
their
individuals
weaLth
learn
simply
because
they
thernselves
they
in
Eo
are
As more
trade,
their
31
acceptabiliEy
This
prospective
to
historical
process
rnarks the
process
continues,
exchange.
As the
ordinarily
become the
Demand for
gold
dispersed,
while
and silver
and silver
supply
are
increases.
evolution
both
is
is
have
relatively
marketable.
't!
a medium of
good will
--
exchange
generally
relat.ively
relatively
of
a parti-cu1ar
cornmonmedium of
go1d and silver
Historically,
gold
traders
srnall.
valuable
money..
been Lhose goods.
great
and widely
In
other
and highly
i.n
have any
self-reinforciog.
conrroditi.es
over
words,
Mengerts
pursuing
of
analysis
their
a desire
Keynes'
rr...
the
views,
Sir
of
is
concerned
Since
of
r,rith the
of
of
f rox0 the
his
rescateroent
choice;
sequence.
known to
of
as flexibilitv:
liquiditv
a single
have
Lheorists
monetary
a related
consisEed
instance,
In
treated
choice,
passage
this
Keynes,
a property
not
in
many individuals
of
outcome
liquidity.
John Hicks
a sequence
the
which
liquiditv.
irnportance
Liquidity
natter
with
self-inEerest,
for
emphasized
dealt
the
it
is
It
is
a
unknor,rn --
lrit.h
32
the
knowledge
John's
liquidity
or
we waiE we can have more knowledge.rr
if
concept
gives
liquidity
trader
that
the
consumer,
production,
commodities
greatly
of
problem.
the
surely
a cornplex econonic
order.
Until
process
models
despite
"money is
recently,
by which
economizj-ng
that
the
nan,
have long
crucial
grappLed
progress
litt.le
product
not
the
100 years
of
of
with
the
Mengerrs
analyzing
existence,
on the
legislative
of
liquid
Most
sone sense,
ago Menger realized
an agreenent
producE
to
in
costs
The evolulion
was made in
a noney good came into
over
the
hi.ghly
progress.
assumed noney was invented
fact
not
exchange
theorisLs
inpl-icitly
the
economic
is
Modern nonetary
reducing
and stockholding,
facilitate
a connon medium of
development
trade
Tn vastly
e1se,
nerchant,
be he craftsman,
agen!,
flexibiJ.ity.
Above all
Mengerrs.
basically
economic
specialized
of
is
Sir
part
acts.
that
of
No one
5J
invented
it.rr
Of much of
the
recent
-14-
literature,
Professor
Jones
rrAlLhough
renarked
that:
overcome
logistical
allocation
with
of
these
works
difficul-ties
of
decenEralized
how a monetary
pattern
illuminate
of
an ef f icient
reaching
exchange,
trade
how noney rnight
they
offer
no suggestions
without
coul-d evolve
a
34
centralized
decision.tr
pioneering
work,
sinultaneously
Yet
he rvas unable
determining
Menger had done this
what
becones
always
the
Though Jones
to
the
in
demand for
a denand for
it
the
this
rrnonmonetaryrr
value.
over
solve
problen
the
the
Its
good as a nedium
it.s
of
markeL va1ue.
mosL narketable
very
marketability
use va1ue.
6f
Mengerrs
and 1n rrGeldrt. Since
Principles
and above its
demand. causes
recognized
rnoney good and its
noney was originally
had an exchange
hirnself
sachanoa
price
relative
g o o c l,
it
enhanced
The addition
i^
ir-<
to
rise
of
over
time.
There
noney.
sequence
is,
however,
Hence,
of
together
movernents, in
certain
price
its
yesterdayrs,
anything,
there
lhan
is
goodrs
for
the
no logical
history.
with
a way not
the
point
no unique
or
agentsr
pure f i.duciary
its
historical
prices
expectations
in
kind
for
break
in
built
upon
of
future
any other
made this
the
price
good.
process
If
nore
good.
Menger analyzed rnoney as a connodity
theoretically
a good becomes
historical
narkeLability
average
which
One dayrs
differing
high
at
evolution.
noney postdates,
in
order
The modern system of
of course,
- t5 -
to explain
Mengerrs theory.
This
systen
devel-oped partly
has
intervention.
for
Lhis
usually
In
a sense,
developnent
Menger anticipated
when he observed
has an influence
on the
by governtnent
and partly
by evolution
that.
at
or
least
allowed
'rt.he 1ega1 order
rnoney-character
of
commoditles
35
which,
analysi.s to nodern nonetary
governnentrs
of
Mises exlended Mengerrs
though sma11, cannot be denied."
making
systems by examining the possibility
coins
or
notes
rnoney by trf iatn.
.1O
All
thaL the State can do by means of its
of f j.cia1
pieces of metal or paper
stamp is to single
out certain
f rorn all
the other things
of the same kind so that they
can be subjected
to a process of valuation
independent
permits
of that of the rest.
Thus it
those objects
possessing
qualification
to be used
the special
legal
as a comnon nediurn of exchange while
the other
conmodities
of the sane sort renain mere comnodities.
It can also take various
steps \,rith the object
of
encouraging
actual
enployment of the qualified
conmodities
as comnon media of exchange.
But Lhese
comnodities
because the
can never become money just
State commands it;
money can be created
only by the
usage of those L'ho take part in commercial
transactions.
We can now assess
nonetary
economics.
evolution
his
of
particular
the
First,
he solved
a cornmonnediun
compositive
subjectivism.
method,
Jonesr
which
renarks
contributions
of
Lhe problem
exchange.
He did
of
of
Menger to
the
so by applying
consisted
of
about
own rnodel apply
his
a thoroughgoing
wlth
37
equal
force
to
Menger:
approach suggests that a very comrnon good
,..The
would emerge as a fi-rst
comnodity money in a barter
The important
point
economy.
is that
this
comnonness
of goods rather
is a market characteristic
than an
phy sical
characteristic
intrinsic
such as portability,
- 16 -
divisibility,
or cognizability.
This i.s not to say
that such physical
play no role in
characteristics
determining
r+hich good will
be used as a rnedium of
exchange.
H6TE?6r-the analysis
suggesrs rhar rhe
ralionale
for using a mediurn of exchange Ln the first
place mi.ght be found in the di.f f ering market
characteristics
of the good and the decentralized
iature
of exchanse.
In
previous
the
vielarpoint
the
on what
origin
of
evolution
of
or
characteristics
explanation
of
or
or
can forn
way 1n which
characteristic
Mengerts
money is
econonic
development,
properEy
of
all
goods,
Nearly
noney
it
is
market..
the
the
much rnore than
rt
replete
has evolved
Iiquid
an evolutionary
of
are
of
is
one of
\^'ith real
into
aIl
for
or
the
with
goods.
It
in
his
theory
otherwise
driving
effects.
being
becorne rnarket
Co narketabiliry,
forces
Lhe most rnarketable
the
is
of
The distincti.ve
a comnon medium of
executed
economic
things
this
an
behavior
economi.st must account
a nu106raire
that,
such
Relating
self-interesLed
characterisEics
rooney good is
most
to
of
the
however,
process.
Menger accomplished
physical
al-1 transactions
constitute,
characteristics
institution.
econonic
the
basis
in
Ennurnerating
evolutionary
Jones,
goods.
money by relating
neutral
the
physical
of
the
and conditions
To paraphrase
analysis.
of
of
does not
of
physical
pLay a ro le
institutions.
conditions
treatnent
econornic institution.
conditions
social
characteristics
individuals
the
any other
analysis
a subjectivist
a sound theoretical
objective
organic
presented
Jcnes
constitutes
noney or
characteristics
these
passage,
exchange.
use of
"for
of
money,
sale"
in
so
everv
Though sti11
econonists,
largely
Mengerrs
lndirectly
through
contrasted
Sinmelts
institution
with
unfarniliar
theory
the
work
vlew
the
of
to
noentary
contemporary
of
noney
gained
of
Georg Sirnnel.
has
sorne exposure
Frankel
money as an evclved
"nnonetary noninalisnrr
of
has
social
Georg Friedrich
38
Knapp and John Maynard Keynes.
that
noney
is
a consci.ous
Monetary
creation
of
contend
nominalists
the
which
state,
can,
39
moreover,
Frankel
be altered
broughL
as the
out
the
pLeases.
state
correspondence
between
Sinmelrs
views
40
on money and those
Rowe correctly
of
Menger.
emphasized
the
In
a review
article,
Laidl-er
nrecedence
intellectual
and
of
4I
Menger.
theory
Sinrnel,
of
inportant
is,
of
money in
the
sociologis!,
developing
and deserving
Mengerrs
is
of
Lhe source
his
apparently
sociology
econonistrs
of
the
drew on Mengerrs
of
rnoney.
attention
economic
As
as Simmelrs
analysis
of
the
work
origin
money.
In
the
next
contemporary
illuninate
section,
monetary
further
I
utilize
debate.
Mengerrs
In
the
process,
Menger I s contribution,
- 18 -
insights
I
to
try
analyze
to
a
42
I ' l h y M on e y ?
The simultaneous
existence
of
noninterest-bearing
and I nt er es t - bear i n g governnent
paradox.
The two assets
bear
different
are
presents
debt
obligations
fiat
money
an appar ent
of
the
sarne issuer,
yer
43
Tobin
very
wrote
posed the
of
rates
rrthe
apparent
rWhy
question:
obligations
of
cbligations.
rl
the
of
return.
In
a classic
irrationality
should
governnent
anyone
instead
of
hold
of
articLe,
hoLding
cash"
non-interest
interest
and
bearing
bearlng
44
Many have argued
would
that,
indeed,
be no demand for
paynents
money.
and receipts,
Individuals
could
and sa 1e of
liquid
in
SEationarity
including
then
bridge
a stationary
certainty
payments
staLe,
implies
of
there
certainty
timing.
gaps through
the
purchase
45
Along
with
transaction
to
generate
of
a stochastic
costs
generate
financial
nust
a demand for
fees
are
to
be added to
a precau!ionary
brokerage
assets.
elenent
money.
demand.
needed to
payments
and receipt.s,
neoclassical
Uncertai-nty
Transaction
insure
_ 19 _
tha!
of
rnodels in
is
needecl t.o
costs
the
order
in
the
forn
precautj.onary
demand is
the
for
money and not
government
for
liabilities
of
( bonds ) .
There are two problerns with
uncerLainty
interest-bearing
this
of these neolclassical
orthodox
approach.
First,
the
models is
severely
li.rnited,
if
rrUncerLainty does play
not contrived.
a role
the analysis,
in
46
but only
uncertainty
with
respect
Second, brokerage fees on highly
quite
1ow.
Treasury bills
purchased for
or 1ess.
connissions
of 30 basis
interest
nutual
this
rates,
It
cost.
(3/10
rates,
is
$1r000, an individual
interest
approach had was lost
financial
rates
slightly
in
There is
no bid-asked
spread involved
new noney-market instruments.
in
And, of
this
may have
neg1ib1e,
the recent
era of
of noney-rnarkeL
With as little
innovations.
below wholesale
1 percent)
rates.
can now place idle
investor
interest
asseLs are
of
surely
whieh saw the introduction
funds and other
only
points
interest
a worLd of double-digit
Any plausibilty
financial
denominati.ons of $10,000 can be
in
been a non-negl-ibl-e transaction
high
narketable
In a world of 3-percent
however, in
of paynents.rl
to the tining
as
balances at
rnoney-narket raE.es.
going in
course,
and out of the
one can writ.e
47
checks Eo draw on his
rationaLize
funds.
a denand for
An approach !ha!
noney in
terns
noney markeLs was rendered i.napplicable
markets.
at.tempted to
o f c h a r a c t .e r i s t i c s o f
by innovations
in
these
Theorists
have recenEly
reasserted
n o n i n t .e r e s t - b e a r i n g m o n e y .
result
of
rnarket
forces,
paradox
the
They deny that
but
argue
paradox
the
it
chat
is
a demand for
of
is
effect
the
the
legal
of
48
restrictions.
Neil
Wallace
seated
case
!he
forecfully:
Laissez-faire
means the absence of 1ega1 restrictions
thaL tend, anong other things,
to enhance the demand
for a governmentrs
currency.
Thus, the imposition
of
laissez-faire
would alnost
certainly
reduce the demand
for government currency.
It could even reduce it
to
zeto.
A zero denand for a governnentrs
should
currency
be interpreted
as Ehe abandonment of one monetary unit
in favor of another -- for exampLe, the abndonnnent of
the do11ar 1n favor of one ounce of go1d.
Thus, ny
predicEion
of Lhe effects
of imposing laissez-faire
takes the form of an either
or statement:
either
noninal
interest
rates go Xo zeto or exisLing
governnent
currency
becomes worthless.
I'Ia11ace dubbed his
the
demand for
According
to
ttthe
analysis
money and the
the
t.heory,
would
noni n t er es t - bear i n g money (e.g.,
(trlaissez-faire")
banking
has gained
description
there
in
assets.
on the
clearer
identified
trcomrnercial
last
point.
By inplication,
banks
checking
might
want
to
requirements,rr
to
set,
He then
give
which
argued
there
that
any reasonable
t1
as one in
accounts)
are
in
other
were
Black
institutions
( and savings
and in
Eischer
system
financial
from
antecedenCs
instance,
financj.al
and other
accoun!s
intellectuaL
For
an unregulated
offer
be possible
Wallacers
acceptance.
an unregulaLed
i nt er es t - bea r i n g noney woul-d be indistinguishable
financial
of
be no demand for
currency )
system.
theory"
1ega1 restrictions
ever
firsc
which
are
free
on any terrns
to
they
no reserve
such
definition
a world
of
ttit
would
Lhe quantity
not
of
noney.
The paynenLs nechanisn
efficient,
b u L n o n ey i n
the
in
usual
place of money, Bl ack predicted
such
a world
sense would
that
be very
would
not
49
tt
rn
exist.
equity-based
cash-management
a c c o u n E s w o u l d e m er g e
It
would appear that
contrived
market analysi.s or accepting
the demand for
There is,
theory
currency
is
the result
however, a !hlrd
choice,
to a
the bold assertion
tegal
of
Lhat
restrictions.
which i.s to adopt Menger's
of monetary evolution.
A Mengerian
perfectLy
analysi.s
Certain
consi.dered.
currency
has not
freesL
ordinarily
borne
financial
assets,
including
vintage.
Restrictions
money,
i.nterest.
are
of
nust
in
creation
the
of
cornparatively
rates
interest
then
systens
Second,
on the
payrnent of
on the
facts
banking
of
1ega1 restrictions
a
nonmoney financial
liquid,
the
money,
between
and institutional
even in
most
distinguishes
and highly
historical
First,
States,
sharpl-y
good,
liquid
assets.
United
one rnust choose between subscribing
recent
on demand
50
date
deposits
on banksr
(f863).
only
issuing
Even so,
to
the
currency
although
demand-deposit
accounts
generally
interest.
bear
The period
of
free
Banking
date
only
interest
before
banking
Act
of
to
1933.
t.he National
was fornerly
Lhe rest.rictions,
in
Scotland
-22_
The restri.ctions
paid
Bank Act
on some
currencv
most closely
did
not
approxj.rnates a laissez-faire
not pay interest
banks did
ScoLtish
banking syslen.
\'tas no
bank notes even though there
on their
51
prohibition
free
banking,
currency.
Notice
that
with
study of
recent
iCompetitive
tr'lhire concl-uded that:
not inconsistent
therefore
In his
doing so.
on their
Scottish
banking is
free
a n a b s e n c e o f i n t er es t - bea r i n g
travelers
even though they
checks today,
do not
are paid over but once and are issued conpetitively'
bear
)z
I
t
in t eres t .
Historical
restrictions
experience
casts
fn theoretical
theory.
suggested by the lega1 restrictions
Mengerian perspective,
yield
rate
interest
is
there
terns,
theory
This reflects
As Menger emphasi.zed, money is
routinely
the fact
yields
liquid,
Fron a
that
bonds
a lower
liquidity'
nonmoney financial
short-tern
assets.
liquid.
at issue.
noneyts superlor
even to the nost
perfectly
is
no paradox in
superior
but is
the ttparadoxrr
does not or else
and money either
of interest.
of the legal
doubt on the thesis
not just
Bei.ng the good that
highly
liquid
circulates
as the medium of exchange' money trades
in
every narket
53
and is
never sold
Klein
at a discount
characterized
Lhe distinction
moneyrs nonDecuniarv services
financial
recurns
assets.
while
other
from par.
Tn other
assets
that
in
the following
distinguish
r,tords, rnoney yields
yield
pecuniary
-23-
it
way: it
is
from nonmoney
nonpecuniary
ret.urns.
Liquidity
is
the peculiar
is
perfec!1y
also
liquid
total
would drive
return
down its
market rate
wouLd be supra-norma1.
explicit
yield
return,
it
will
not
rnoneywere both
If
and yi.elded an explicit
liquid
then its
of interest.
Because rnoney
by rnoney.
and yi.elds a nonpecuniary
yi.e1d a market rate
perfectly
yielded
nonpecuniary return
so that
of
interest,
Cornpetitive
the total
forces
rate
of
54
return
equaLed that
Kleinrs
analysis
approach.
nicro
IL is
theory
of nonmoney fLnancial
is
certainly
a narket
and institutional
restrictj.ons,
patterns
with
features
in
order
in
both
markets.
financial
of invoking
origin,
that. have persisted
Mengerts
a sound basis
of
the necessity
which are of recent
of return
with
consisLent
analysis,
The approach also obviates
assets.
J.ega1
to explain
across time and differing
lnstitutions.
A School Apart
Mark Blaug once attributed
ttwhat was inportant
to T. W. Ilutchinson
in marginal
uti.lity
the clain
was the adjective
that
rather
:)o
than the noun."
This
observation
is
decidedly
not true
of
it
Mengerrs
concept
work.
in
Utility
Mengerrs
or
subjective
analysis.
His
value
analysis
was the
paramount
was subjectivist
both
58
in
rnethodology and in
marginal"ists
certainly
content.
contained
The !heories
of the other
subjectivist
elements bu! none
was as thoroughgoing
the enduring
its
contributi-on
subjectivism.
Streissler
obseryed that
rightly,
in
subjectivism
of the Austrian
best
as was Mengerrs. Indeed,
School flows
s u m r n e du p t h e s i t u a t i o n
rrthe AusLri.ans
always stressed,
r think,
that
from its
when he
and stressed
they were the school of
subjective
values,
59
a school apart. tr
Mengerts mosE enduring
economics generall-y -explanation
decision,
legacy to rnonetafy econornics --
was his
of noney as being the result
Menger used his
to develop a theoretical
develop an evolutionary
individualistic
soluti-on.
theory
tried
I
This
of money.
weLl known, however, then his
paper,
subjectivisrn.
Havlng rejected
or microeconornic method
approach enabletl him to
This
nethodological
the contenporary
an
of a centralized
relevance
theory
writings.
have attempted to remedy the situation.
to Lndicate
as to
I
is
less
In
this
have also
of Mengerrs theory
60
n
r
o
n
e
y
.
of
rrTo What Extent
1. See, for instance, Erich Streissler,
Was the
Austrian School Marginalist?"
in R. D. ColLison 81ack, A. W.
-
z)
-
Coats and Craufurd D. W, Goodwin, eds., The MarginaL Revolutron
in Economics: Interpretation
a n d _=_i__=:_::_:_=_:_:
E v a l u a t f o - n =( D u r h a n , N . C . : D u k .
:i:-:
-T6O:75;
Uni_versiry PreEEl-T973)l-!'!-T
aTso see rhe essays in J.
R. I{icks and W. Weber, eds., Carl Menger and the Austriin SchooI
gf Econgpigp (Oxfordl
rress, L9tJ).
Oxford Unlversity
Prass,
The Clarendo;
J ee,
2
4. b
ft o r
e xx aam
mppl tee, , L a w r e n c ee H . W hhiittee,, M e t h o d o l o g y o f t h e
School, Occasional. Paper No. I (New Yorlc: Cencer tor
Libertarian
Srudies , 1977) , pp.
2-5
. aL
n
-A&U!S. tf fr i: C
3 . . S e e , , . f o r e x a n p l e , R . I ^ 1 .C l . o w e r , t t F o u n d a t i o n s o f M o n e t a r y
penguin Books, Igi-O),
Theory," in Monetary Theorv (Baltinore:
pp .
2O2-1I;-f,o-G-F-n U.-T$ioy
ancl Ross M. Siarr , 'iMo;;y and' ttre
De c e n t .r a 1 i z a t i o n o f E x c h a n g e , t r E c o n o r n e E r i c a 4 2 ( N o v e m b e r L 9 7 4 ) :
1093-1114; Robert A. Jones, i,Ttr;-6'if[Tn-Zi-a' Development of Media
of-Exchange,' Journal of Polirical
Econony 84 (August I9l6) z
tJo-tJi and Robert A. Jones and Joseph M. Ostroy, r'Flexibility
a n d U n c e r t a i n t y , r r R . 3 1 - q 1 1o f E c o n q l q i c s a n d S t a t i s t i c s
5l ( Januar y
1 9 8 4) : 1 3 - s 2 .
4 . M a r k B 1 a u g , r r l ' J a sT h e r e a M a r g i n a l
and Goodwin, p.
14.
Revolution?rr in BI_ack, Coats
5 . S e e W i l l i a m J a f f e , t t M e n g e r , J e v o n s a n d W a l r a s D e - H o r n o g e n i z e d r, r
Economic Inquirv XIV (Decenber 1976).
6. Cf.
Jaffe,
579-20 and Srreisster,
pp.
L7Z-73.
7. Streissler
does make this connection, but in the conLext of a
more general thesis with which I cannot agree.
(See footnote
ItTo what Extent Was the Austrian School
59.) See Streissler,
M a r g i n a l i s t ?r l
Friedrich
A. Hayek, I'The Facts of the Social Sciencesl in
and Egonomic 0rder (Chicago: University
of Chicago
Individ.uqli:m
rress, IY45), p.
b0.
8. Cf.
9. See Hayek, rrEconomics and Knowledge," in ibid. , p.
42. Also
U
s
e
o
f
K
n
o
w
l
e
d
g
e
i
n
S
o
c
l
e
t
y
,
"
T
h
e
"E--_l_bi4.. , pp.
:ge^Sg.rn,
10. Friedrich
von Wieser, Natural Value, trans.
by Williarn Smart
(New York: Augustus M. KeIley, 1971), t.
183; reprinr
of the
1893 edition.
Two pages af t.er this passage, Wieser added thaE:
"Possibly it is the greatest triumph of the theory of rnarginal
utility
that it f ul1y explains the obscure conception of costs,
rrith vhich every other theory had to reckon, and with which no
theory could cone to any reckonj-ng.it
-26-
11. Joseph Schurnpeter, Historv of Economic Analvsis
o),
0xford University
P r e s s , 1 9 5 4) , p .
(New York:
12. Ibid.,
p.
wiLh Mar sha11 I s
922n. The reader unfaniliar
argunent can find references in Schurnpeter, Pp.
920-24.
13. But see James M. Buchanan, Cost and Choice: An lnquirv
Econonic Theory (Chicago: Markham, 1969). Buchanan defends
subj ectivist
analysis of costs.
14. 0n Mengerts Aristotelianism,
see Emil Kauder, A Historv of
MaLginal UEility
Theory (Princeton:
Princeton University
Press,
I965), pp.
83 and 95-100; cf.
White, Methodology of the
Austrian School, pp.
3-4.
1 5 . F o r H a y e kI s a n a l y s i s
of the price
Knowledge,rr rrThe Use of Knowledge
of Conpetition,rr
aII reprinted
in
system, see t'Economics and
in Society,"
Individualism
and t'The Meaning
and Economic
0rder. 0n the Mises-Hayek analysis of econonic calculation,
see
D. C. Lavoie, Rivalry and Central Planning: Socialist
Calculation
Debate Reconsidered (Canbridge: Cambridge University
Press,
19E5J
16. For an excellent
aasessment of the role of institutions
in
ttThe rNer.tInstitutionaL
economic theory,
see Rlchard N. Langlois,
Economicsr 3 An Introductory
Essayrtt itt ilgg.,
ed., Economics as a
Process:
Essavs in trThg Nert Inqtaqllt:Lenq!
Econonicstr (Cambridge:
e anEi iI ge-Tn i verETri-Fie65i
I 98-6'I.
17. Carl Menger, Problems of Economics and Sociologv, trans.
Francis J. Nock and ed.
by Louis Schneider (Urbana, 11L.:
Universlty
of I11inoi.s Press, 1963), p.
146.
18. Ibid.,
p.
pp.
19. Ibid,
by
147.
158-59.
20. Menger did so in a nanuscript note to Schrnollerrs revj-ew of
M e n g e r r s M e t h o d e n d e r So c i a 1 wi s s e n s h a f L e n . S e e F . A . I l a y e k , T h e
o f S c i e n c e : S t u d i e s o n t h e A b u s e o f R e a s -Ttz
Counter-revolution
on
Irl"r
vott t tlucmirrar, The lre.
(note
33).
FiEJF-or-TrE'nlo6l rds5T, w
21. For exanpl-e, see Fredrich A. Hayek, rrThe Results of Hunan
A c t i o n b u t n o t o f H u r n a nD e s i g n r t t i n S t u d i e s i n P h i l o s o p h v ,
a6
n dt t ,E- cpopn.o r n i c s , ( N e w Y o r k : S i m o n a n d S c h u s t e r , C l a r i o n
P o l i t i c s- T S
e6:tos.
s..ks,
22. F.A. Hayek, "Carl
474.
23. Cf.
Friedrich
Yenger,"
A. Lutz,
Economica, N.S. 1(Novernber 1934):
"0n Neutral
-27
-
Moneyrt' in
Erich
Striessler,
et a1.,
eds.,
| ! ! edr i c h 1,--req-!_cJel
Roads to Freedon: Essays in Ilonour of
1lt ew-To?k :-e us us r us M:-KelTelT
T969Jl pp .
105-09; and R. lJ. Clower, "Foundations of Monetary Theory,rr in
Monetarv Theory (Battimore: Penguin Books, 1970), pp.
2O2-tL.
24. Robert A. Jones, 758.
25. Two proninent exceptions are Sir John Hicks in his Theorl of
Economic Historv (New York: 0xford University
P r e s s , Ga G - i i Books, f969), pp.
28-29 and 63-68; and Boris P. Pesek and Thonas
R- Saving in their Money. Wealth and Econonic Theorv (New York:
The Macrnillan Compai!l-T967)-:
ntl26. Carl Menger, Principles
of Economics, First,
General Part.
Trans. and ed.
by JaEE; DingTeTT-fnd Aert F. Iloselitz with an
Introduction
by Frank H. Knight (G1encoe, I1L.: The Free Press,
1950), p.
260.
27. Ibid.,
p.
241. Mengerrs subjectivist
emphasis is evident in
this passage and in his analysi.s of noney generally;
see ![g1!.,
pp.
236-41 .
28. Ibid.,
p.
248.
29. Ibid.
30. Menger was alnost exhaustive
and facilitating
narkeLability.
in discussing
factors
248-53.
Ibid. , p.
inpeding
31. Cf. Lawrence I{. White, rrConDetitive pavnents Svsterns and the
Unit of Account,rt American Econornic Review 74 (September 1984):
703.
3 2 . S i r J o h n H i c k s , T l l e -3E:59.-EiEJ-FiiEE"i-i6Eed
Crisis in Keynesian Economics (New york:
Basic Books, 1974), pp.
rhar ,'by
holding the i.nperf ectly liquid
asset the holder has narrowed the
which nay be open Eo him ... He has
trend of opportunities
rlocked himseLf in. trr Ib:!{., pp.
43-44. Cf . G. L. S. Shackle,
(
C
a
n
b
r
l
d
g
e
:
press,
I
I
i
g
h
T
t
r
e
o
r
v
o
f
C
a
mbridge University
IgEr._g
1967), p. _6, where money is described ai "the refug! from
specialized
conmitr[ent, the postponer of the need to take
f ar-reaching decisi-ons. rl
33. Menger, Principles,
p.
') 6',)
p.
26t.
34. Jones , 759.
35. Menger, Principles,
36. Ludwig von Mises, !hg Theory of Money and Credi!, 2nd ed.
T r a n s . b y H . E . B a t s o n ( I r v i n g t o n - o n - Hu d s o n , N . Y . : F o u n d a t i o n f o r
Economic Education, 1971), pp.
60-61. For Misesr criticj.sm of
-28-
the
r rs
!at e theory
37. Ibid. ,
of noney, tt see
39. Ibid.,
p.
40.
pp.
41. David
of Money:
LiteraEure
7L-78 and 463-69.
I TJ.
38. S. Herbert Frankel,
nrackwel-l, t9tt)
Ibid.,
pp.
Money: Tr*o Philosophies
(0xford:
Basil
48
32,
34,
35,
and nores
thereto
Laidler
and Nicholas
Rowe, ttGeorg Sinnelrs
Philosophv
A Review Article
f o r E c o n o n i s t s , t r J o u r n a 1 o f E c o n o m ic
18 (March 1980): 97-105.
42. With apologies to Armen Alchian. See his t'WhyMoney?tt Journal
of Monev, Credit and Bankins 9 (February L977): 133-40.
43. Currency is the paradigmatic noney in these accounts,
treasury bills
t h e p a r a d i g m a t i c i n t e r es t - bear i n g d e b t .
and
44. Jarnes Tobin,
Liquidity
Preference as Behavior Toward Risk,,t
Review of Econqqlic Studies 25 (February 1958): 65. Cf . Willian
J.
BaumlT,TfiE-TianiaEtion
Demand for Money: An Inventory Theoretic
A p p r o a c h , " 0 u at e r l v J o u r n a l o f E c o n o n i c s 6 6 ( N o v e n b e t 1 9 5 2 ) . .
545-5b; and Don Patinkin, Money, InLerest,
and Prices: An
lstcsrelig.s
or Mgngt ar v e"aEsr.-@;
Harper & Row, 1965), pp.
za Gcl--( tter" T6-rt :
ZS-t SS.
45. Cf. Baurnol, pp.
169 and 175n. Baumol cited Knight, Divisia,
Patinkin and Rosenstan-Rodan as sources of stationarv-state
argurnent.
46. Patinkin,
p.
80, emphasis added
47. These financial
innovations are exanined in nore detail
in
Gerald P. 0rDrisco11, Jr.,
"Money in a Deregulated Financial
SystenrI Econornic Review of the Federal Reserve Bank of Dal]-as
(May 1985) z l-12, especially
pp.
2-6. Deregularion of interesr
rates paj,d on deposits has accelerated the process described
here.
48. Neil Wa11ace, rrA Legal Restrictions
Theory of the Demand for
rMoneyr and the Role of Monetary Policy,'r
Quaterlv Review of che
Federal Reserve Bank of Minneapolis (Winter 1983): 4. Eor an
sLatenent of the theory, see John Bryant and Neil
earlier
hla11ace, I'The Inefficiency
o f I n t e r es t - bear i ng N a t l o n a l D e b t , r r
P
o
l
i
t
i
c
a
l
E
c
o
n
o
r
n v8 7 ( A p r i 1 1 9 1 9 ) ; 3 6 5 - 8 1 . A l s o s e e
Jounral of
DEiTcit Finance in a-Regime of Unbacked
Jo tri- nryii'tl-tT"aIyzi;gGovernrnent Paper," Econonic Review of the Federal Reserve Bank of
Da11as (January 1985): 17-27. Some of the precursors of the
Bryant-Wa11ace view are examined in 0rDriscol.1, pp.
6-10.
-29-
49. Fischer B1ack, Banking and Interest
RaLes in a World Without
Money: The Ef f ects of Uncontrolled Banking, t' &gIg!
of Bank
Research 1 (Autumn 1970): 9
50. These restrictions
have recently
el-iminated for individuals.
been substantially
51. These notes did pay a contractually
set rate
the event that specie payment were suspended.
of interest
in
52. Lawrence II. White, Free Bankin& in Britain:
TheorV,
Experience, and Debate, 1800-1845 (Carnbridge, U.K.: Cambridge
University
Press, 1984) , pp.
8-9.
53. Cf.
O'Dri.scoll,
p.
11.
54. Benjamin R1ein, "The CompeLitive SuppLy of Money,I Journal- of
Monev, Credit, and Banking 6 (November 1974) 2425i cf.
b'5Fisc6, f,
pp.-To:T-f-
55. It would be beyond the scope of this
paper to resolve
the
question
of whether assets can have varyi.ng degrees of
ttnoneyness,r? or whether
they can straddle
the demarcation
between
noney and nonmoney.
Certainly
like
lhere are bank accounts,
noney narket
deposit
accounts,
which yield
and appear to
interest
have some of noneyrs properLies.
not most noneEary
Many if
econonisls
would argue that assets do vary in their
moneyness or
liquidity.
For a contrary
view, however, see Dale K. Osborne,
ttWhat is Money Today?"
Econornic Review of the Federal Reserve
Bank of Da1las
( January-I9--6'ifl-
56. See Streissler,
p.
160.
57. The AusLrian concept of the margin differs
from the
concept.
neoclassical
Thus, the Austrians did not even
the meani.ngof the adjective.
See J. lluston McCuLloch,
Austrian Theory of Marginal Use and of 0rdinal Marginal
f u r Na t i o n a 1 o k o n o r ni e 3 7 ( 1 9 7 7 ) z 2 4 9 - 8 O .
Zeitschrift
nodern
agree on
ItThe
Utility,rr
58. This distinction
is develooed furCher in Gerald P.
O r D r i s c o l l - , J r . a n d M a r i o J . R i z z o . T h e E c o n o m i c s o f T i m e -a n d
Isnorance (Oxford: Basil Black*eff , ES)ll'p.
t7:54.rrTo l,Ihat Extent
59. Streissler,
Was the AusLrian School
MarginaList?rr p.
161. This paper, along with Streisslerrs
cornpanion piece, "Mengerts Theories of Money and Uncertainty -- .{
M o d e r n I n t e r pr e t a t i o n , r r i s e x t r e m e l y i n p o r t a n t
for any
reassessment of Ehe Austrians.
f have not dealt lrit.h them in more
detail
for two reasons.
First,
I had wanted to focus on the
primary rather than the secondary literature.
Second, I believe
ttreads backrr Lo Mengerrs monetary economics, making
Streissler
-
JU
-
him seem too nuch like a precursor of Keynes. Moreover, I thinlc
Streissler
w e n t t o o f a r i n s e p a r a t i n g M e n-g e r f r o m t h e
r]nqrginalists,tr
p a r t L y b e c a u s l St r e i i s 1 e r p 1 a y e d d o w n t h e
dl-tterent concept of the rnarginal unit for the early Austrians.
This 4ifferent
concept played no less a role for them than did
Ene alEernative concept for Lhe Lausanne School. (See the
reference footnote 57. )
60. T would like to acknowledge the helpful conments of Lyla H.
0tDriscoLl,
Lawrence II. White and two anonymous referees.The
viens expressed in the article
are solely the authorrs and do not
necessarily represent the official
position of anv Dart of the
Federal Reserve System.
- 31 -