4 min readAug 17, 2020


Menger Origins of Money

It is not impossible for media of exchange, serving as they do the commonweal in the most emphatic sense of the word, to be instituted also by way of legislation, like other social institutions. But this is neither the only, nor the primary mode in which money has taken its origin.


However, there is no praxeological difference between a medium of exchange and money. For the difference here boils down merely to one of how one defines the word “money,” and to what extent the medium in question is accepted in the market in order to meet the definition. Menger (2009, p. 11) defines money as the “universal medium of exchange,” meaning it must be accepted by everyone, while Mises (1998, p. 398) more reasonably maintains it must be “generally-accepted and commonly-used,” leaving some room for the possibility that not everyone need be willing to accept it.

While Menger maintains that money has to originate as a commodity — implying that the good must be tangible — in the modern age we should consider all goods to be contenders for becoming a media of exchange, whether or not they possess any physical attributes, says Graf.


Money is a commonly used medium of exchange.[1]People wishing to achieve their ends often have to trade. They can exchange their goods directly, if they have matching preferences and suitable goods, or indirectly, with the help of another good, the medium of exchange.

But, money itself must first have originated as a directly serviceable good before it could become an indirectly serviceable good.[4]

4. Dan Mahoney. “Austrian Business Cycle Theory: A Brief Explanation”, Mises Institute, referenced 2009–06–17.


However, money itself must first have originated as a directly serviceable good before it could become an indirectly serviceable good (i.e., money). This is the thrust of Mises’s regression theorem (Mises [1981]; Rothbard [1993], ch. 4).

In the most developed societies, the precious metals have eventually been preferred to all other goods because of their physical characteristics (scarcity, durability, divisibility, distinct look and sound, homogeneity through space and time, malleability, and beauty).[6]

For a good to become money, it must have the physical properties and be considered valuable by itself The price of a good, when employed only for nonmonetary purposes, is a good starting point to estimate its price for use as a money. Should the good stop being money, it will still have value due its other uses.[6]

me·di·um /ˈmēdēəm/ noun 1. an agency or means of doing something. “using the latest technology as a medium for job creation”


To be spontaneously adopted as a medium of exchange, a commodity must be desired for its nonmonetary services (for its own sake) and be marketable, that is, it must be widely bought and sold.

spon·ta·ne·ous /spänˈtānēəs/ Learn to pronounce See definitions in: All Medicine Biology adjective performed or occurring as a result of a sudden inner impulse or inclination and without premeditation or external stimulus.


https://wiki.mises.org/wiki/Regression_theorem (copied word for word)

People value units of money because of their expected purchasing power; money will allow people to receive real goods and services in the future, and hence people are willing to give up real goods and services now in order to attain cash balances. Thus the expected future purchasing power of money explains its current purchasing power.

But haven’t we just run into the same problem of an alleged circularity? Aren’t we merely explaining the purchasing power of money by reference to the purchasing power of money?

No, Mises pointed out, because of the time element. People today expect money to have a certain purchasing power tomorrow, because of their memory of its purchasing power yesterday. We then push the problem back one step. People yesterday anticipated today’s purchasing power, because they remembered that money could be exchanged for other goods and services two days ago. And so on.

So far, Mises’s explanation still seems dubious; it appears to involve an infinite regress. But this is not the case, because of Menger’s explanation of the origin of money. We can trace the purchasing power of money back through time, until we reach the point at which people first emerged from a state of barter. And at that point, the purchasing power of the money commodity can be explained in just the same way that the exchange value of any commodity is explained.


It is erroneous to object to our theorem, which may be called the regression theorem, that it moves in a vicious circle.8

It says: This always happens when the conditions appear; whenever a good which has not been demanded previously for the employment as a medium of exchange begins to be demanded for this employment, the same effects must appear again; no good can be employed for the function of a medium of exchange which at the very beginning of its use for this purpose did not have exchange value on account of other employments. And all these statements implied in the regression theorem are enounced apodictically as implied in the apriorism of praxeology. It must happen this way. Nobody can ever succeed in construction a hypothetical case in which things were to occur in a different way.

The acceptance of a new kind of money presupposes that the thing in question already has previous exchange value on account of the services it can render directly to consumption or production. Neither a buyer nor a seller could judge the value of a monetary unit if he had no information about its exchange value — its purchasing power — in the immediate past.

Theory of Money and Credit

If the objective exchange-value of money must always be linked with a pre-existing market exchange-ratio between money and other economic goods (since otherwise individuals would not be in a position to estimate the value of the money), it follows that an object cannot be used as money unless, at the moment when its use as money begins, it already possesses an objective exchange-value based on some other use.