Carl Menger theorized that money emerged spontaneously in a barter economy through individual actions, without state intervention, as an emergent phenomenon based on goods’ varying marketability and liquidity.
Money forms when the most marketable commodities become increasingly desirable in trade, snowballing into a few widely accepted items, with characteristics like durability, divisibility, and homogeneity making them ideal candidates.
The Austrian School of Economics, particularly Menger, developed the theory that money originated as a medium of exchange, with its value determined by subjective preferences and marginal utility, not intrinsic properties.
Mises’ regression theorem states that any good serving as money today must have originally been valued for its own sake, avoiding circularity by explaining money’s purchasing power through expected future value based on past observations.
In a POW camp, cigarettes became a medium of exchange due to their durability, divisibility, and convenience, serving as a store of value and unit of account for prisoners.
Menger’s theory of money’s origin is more rigorous than Adam Smith’s, using utility theory to explain how money emerged through individual actions in a barter economy.
The marginal utility approach explains exchange ratios of goods but struggles with money’s value, as it seems to argue in a circular manner when referencing purchasing power.
Gold and silver are excellent monies because they score well on criteria of being durable, easily divisible, homogeneous, and having a convenient amount of purchasing power relative to their size and weight.
