In the realm of digital currency, a fundamental debate has raged for the past decade: Is bitcoin (BTC) primarily intended as a peer-to-peer electronic cash system, per Satoshi Nakamoto’s original vision, or does it function more as a digital store of value, akin to gold? Furthermore, an essential question arises regarding the primary function of money: should its role as a medium of exchange outweigh its attributes as a store of value? This explanatory piece delves into the Austrian school of economics, focusing on Carl Menger’s seminal work “On the Origins of Money,” to shed light on these debates.
Carl Menger’s Insights: The Evolution of Money from Spontaneous Institution to Currency
Rather than engaging in the dichotomy of whether bitcoin should serve as a medium of exchange (MoE) or a store of value (SoV), this article seeks to explore the central consideration in the transition to a monetary unit. In “On the Origins of Money,” Carl Menger, a pioneering figure in Austrian economics, posits that money’s emergence is a spontaneous social phenomenon driven by individuals pursuing their self-interest, rather than a state-imposed construct.
Menger’s theory elucidates a process wherein certain commodities, possessing attributes such as durability, transportability, and divisibility, become more “saleable” than others. These commodities, due to their enhanced acceptability in trade, facilitate exchanges for desired goods. Over time, the most saleable commodities attain universal acceptance as mediums of exchange, fueled by continuous demand from parties seeking to trade them for other goods.
Menger articulates:
“With the extension of traffic in space and with the expansion over ever longer intervals of time of prevision for satisfying material needs, each individual would learn, from his own economic interests, to take good heed that he bartered his less saleable goods for those special commodities which displayed, beside the attraction of being highly saleable in the particular locality, a wide range of saleableness both in time and place.”
Perspectives from Renowned Austrian Economists Mises and Rothbard
In the context of bitcoin, Menger’s theory suggests that its efficacy as a medium of exchange should take precedence over its role as a store of value, particularly in its nascent stages. Essentially, BTC must achieve broad acceptance in transactions before assuming the role of a store of value. Austrian economists Ludwig von Mises and Murray Rothbard further emphasize that the function of a medium of exchange precedes that of a store of value in the evolution of money.
In September 2022, authors Kristoffer Mousten Hansen and Karras Lambert expounded on Mises’ perspective in an essay for Mises.org. They underscore Mises’ assertion that a commodity must first demonstrate its ability to “transmit value” over time before assuming the role of a medium of exchange and subsequently a store of value. Accordingly, adherents of the Austrian school advocating for bitcoin should prioritize its function as a medium of exchange over its function as a store of value, aligning with the insights of Mises, Menger, and Rothbard.
Hansen and Lambert contend that dismissing the significance of active cryptocurrency usage in favor of a “HODL forever” mentality contradicts Mises’ recognition that “business usage alone can transform a commodity into a common medium of exchange.” They also note that the emphasis on store of value, epitomized by computer scientist Nick Szabo’s writings, diverges from the Austrian school’s conception of the origins of money.
What are your thoughts on Carl Menger’s conception of money and the process of its evolution? Share your perspectives in the comments section below.
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