Since Satoshi’s revolutionary white paper was published 10 years ago, ardent proponents of digital currency have engaged in heated discussions about whether bitcoin (BTC) is intended to function as peer-to-peer electronic cash or as a digital store of value analogous to gold. A crucial question about the basic function of money also arises: Should its qualities as a means of exchange take precedence over those of value preservation? The Austrian school of economics is explored in the following Learning & Insights explainer, which focuses on Carl Menger’s “On the Origins of Money.”

From Spontaneous Social Institution to Currency: Menger’s Insight Into Money’s Evolution

Instead of disputing whether bitcoin (BTC) should serve as a medium of exchange (MoE) or a store of value (SoV), this editorial seeks to examine the key factor that must be taken into account when something becomes a unit of currency. The founder of Austrian economics, Carl Menger, argues in his book “On the Origins of Money” that the origin of money is a spontaneous social institution that results from people pursuing their own interests rather than something imposed by the government.

Menger claims that the process starts with some commodities becoming more “saleable” than others due to characteristics like durability, mobility, and divisibility. Because they make it easier to exchange for desired goods, these commodities are more widely accepted in commerce. The most marketable goods eventually gain widespread acceptance as a form of exchange. Due to the ongoing demand for them from parties looking to exchange them for other commodities, they have high saleability.

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According to Menger, the process begins when some commodities become more “saleable” than others due to traits like toughness, portability, and divisional ability. These things are more frequently accepted in business since they facilitate the exchange of desired goods. The most salable items gradually come to be accepted widely as a medium of exchange. They have high saleability since there is a constant demand for them from parties seeking to trade them for other goods.

BTC/USD Price Chart – Source: Tradingview

Renowned Austrian Economists Mises and Rothbard on Money’s Primary Functions

According to Menger’s theory, bitcoin’s ability to function as a medium of exchange should take precedence over its function as a store of wealth, especially in the beginning. In essence, BTC must become widely accepted in transactions before acting as a store of value. Murray Rothbard and Ludwig von Mises, both Austrian economists, simply explain why the MoE function comes before the SoV function in the evolution of money.

Hansen and Lambert contend that Mises’s observation that “business usage alone can transform a commodity into a common medium of exchange” is at odds with “downplaying the importance of active usage of cryptocurrency” and favoring the “HODL forever” perspective. Additionally, they point out that the SoV-centric mindset can be linked to a letter written by prominent computer scientist Nick Szabo. Despite being common in the crypto realm, the SoV-centric viewpoint diverges from the Austrian school’s theory of the origins of money.


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