Principles of Economics by Carl Menger
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APPENDIX
J
History
of Theories of the Origin of Money
THE GREAT
THINKERS OF antiquity, and following them a long series of the most
eminent scholars of later times up to the present day, have been more
concerned than with any other problem of our science with the
explanation of the strange fact that a number of goods (gold and silver
in the form of coin, as civilization develops) are readily accepted by
everyone in exchange for all other commodities, even by persons who
have no direct requirements for them or whose requirements have already
been fully met. A person of the most ordinary intelligence realizes
that the owner of a good will give it in exchange for one that is more
useful to him. But that every economizing individual of an entire
society should be eager to exchange his commodities for small discs of
metal, which ordinarily only a few men can use directly, is something
that is so contradictory to the ordinary course of events that we
cannot be surprised that it appears “mysterious” to even so brilliant a
thinker as F.K. v. Savigny (Das Obligationenrecht als Theil des
heutigen römischen Rechts, Berlin, 1851–53, II, 406). The
problem that science must solve is thus the explanation of human
behavior that is general and whose motives do not lie clearly
upon the surface. Considering these two features of the problem it is
easy to understand why the idea arose of attributing the behavior in
question to an agreement between men or to the expression of their
collective will (the law), especially with respect to money in its
minted form. Plato and Aristotle take this position. Plato calls money
a “token for purposes of exchange” (Republic, II. 371; see B.
Jowett, trans. & ed., The Dialogues of Plato, London,
Oxford University Press, 1892, III, 52), and Aristotle, in a much
quoted passage, says that money originated by convention, not by nature
but by law (Ethica Nicomachea, v. 5, 1133a, 29–32).
He expresses this view even more distinctly in his Politics,
where he says that “men agreed to employ in their dealings with each
other something . . . for example iron, silver, and the like,” and
offers this as his explanation of the origin of money (i.9. 1257a,
36–40).
The Roman jurist Paulus, whose views on the origin of money have been
preserved in Justinian’s code (L. 1. Dig. de contr. emt. 18, 1), solves
the problem in a way similar to that of the Greek philosophers. He
points to the difficulties involved in pure barter and gives it as his
opinion that these difficulties were removed by a public institution
(money). Paulus writes that “A substance was selected whose public
evaluation exempted it from the fluctuations of the other commodities,
thus giving it an always stable external (nominal) value. A mark (of
its external value) was stamped upon this substance by society. Hence
its exchange value is based, not upon the substance itself, but upon
its nominal value.” Thus Paulus also attributes the origin of money to
public authority.
Alongside the views just described, we can also discern attempts of the
writers of antiquity to trace the special position occupied by the
precious metals as compared with the rest of commodities back to
special qualities of the former. Aristotle points to the ease with
which they can be handled and transported (Politics,i.9. 1257a,
39–41) and in another place to their relative stability of price (Ethica
Nicomachea, v. 5. 1133b, 13–15). Xenophon even
observes the wide quantitative limits within which the precious metals,
chiefly silver, can be marketed. He argues that if the products of
smiths or coppersmiths, or even wine or grain were to arrive on a
market in unusually large quantities, they would severely fall in
price, whereas silver, and to a smaller extent gold also, always could
be exchanged at profitable prices (Ways and Means: A Pamphlet of
Revenues, in H.K. Dakyns, translator, The Works of Xenophon,
London, Macmillan Co., 1892, II, 335–336). The durability and
indestructibility of the precious metals, particularly of gold, was
already stressed by Pliny (The Natural History, translated by
John Bostock and H.T. Riley, London: H.G. Bohn, 1857, VI, 96–97 and
111–112).
The extremely fertile literature of the middle ages and the sixteenth
century was carefully collected by Philipp Labbé (Bibliotheca
nummaria, ex Theologis, Juris consultis, Medicis, ac Philologis
concinnata, etc., Rouen, 1672). The collections of René
Budel (De monetis et re nummaria, Cologne, 1591) and of Marquard
Freher (De re monetaria veterum Romanorum et hodierni apud Germanos
Imperii, Lyons, 1605), contain many noteworthy publications of that
period (including the tracts of Nicolaus Oresmius and Gabriel Biel).
Roscher has discussed several of them in his Grundlagen der
Nationalökonomie (Stuttgart, 1892, pp. 301–302, note 6) with
great scholarly industry. These tracts were chiefly concerned with the
practical problems of coinage, especially with the question of the
existence and the limits of the right of princes to change the metallic
content of coins, and with the consequences of these changes on public
wealth. This problem had become important because of frequent abuses of
the coinage by government. In this context, several authors also take
the opportunity of discussing the problem of the origin of money, which
they solve on the basis of the findings of the writers of antiquity,
with regular reference to Aristotle. See Nicolaus Oresmius (Nicole
Oresme) (died 1383), Tractatus de origine, natura, jure et
mutationibus monetarum (ed. with a translation by L. Wolowski,
Paris, 1864, p. ix and p. xciv); Gabriel Biel (died 1495), De
monetarum potestate et utilitate libellus (in Gaspar Antonius
Thesaurus, De monetarum augmento variatione et diminutione,
Torino, 1609, p. 1, also in an English translation, Treatise on the
Power and Utility of Moneys,translated and edited by R.B. Burke,
Philadelphia, 1930, p. 19); Carolus Molinaeus, De mutatione
monetarum quaestiones duo (in R. Budel, ed., De monetis et re
nummaria, p. 485); Didacus Covarruvias, Veterum numismatum
collatio, in ibid., p. 648; Jacobus Menochius, Consilium
XLIX, in ibid., p. 705; René Budel, De monetis
et re nummaria, in ibid., p. 10; and Jehan de Malestroit, Les
Paradoxes, written in 1566 (reprinted in L. Einaudi, editor, Paradoxes
inédits du seigneur de Malestroit, Torino, 1937, p. 97).
Summarizing the course followed by the investigations of these writers,
they almost always begin by showing the difficulties to trade arising
from pure barter. They next show how it is possible to remove these
difficulties by the introduction of money. In the further course of
their arguments, they stress the special suitability of the precious
metals for serving as money, and finally, citing Aristotle, they reach
the conclusion that the precious metals actually became money by the
legislation of men. (Oresmius says that money is an “instrumentum
artificialiter adinventum,” op. cit., p. xliv; Biel says that
it is “vel ex sui natura vel hominum instituto,”
op. cit., p. 2; and Molinaeus
says that “inventio et institutio monetae . . . est de iure gentium,”
op. cit., p. 486.) However
meritorious the service of many of these writers in opposing abuses of
the coinage on the part of princes, they did not therefore improve upon
the views of antiquity so far as the question of the origin of money is
concerned.
The early Italian and English writers are no exception. Bernardo
Davanzati, writing in 1588, strictly follows the views of Aristotle and
Paulus, and traces the origin of money back to the authority of the
state (“per legge accordata,” see his Lezione delle monete in Scittori
classici Italiani di economia politica, Milano, 1803–05, II, 24).
Geminiano Montanari (d. 1687), does the same (Della moneta, in ibid.,
III, 17, 32, and 118). And Lewes Roberts, whose widely read The
Merchants Map of Commerce was first published in 1638, represents
the economic views of England of the seventeenth century more
accurately than any other work of that age, traces the origin of money
to the same source (see p. 15 of the Third Edition, London, 1677).
Among the monetary writers of the first half of the eighteenth century
John Law is preeminent for his researches into the origin of money. His
contemporary, Boizard, was still attributing the origin of money to
public authority, and Vauban (Projet d’une dixme royale, written
1707, republished in E. Daire [ed.], Economistes financiers du
XVIIIe siècle, Paris, 1843, p. 51), as well as Pierre
Boisguillebert (Dissertation sur la nature des richesses, de
l’argent, et des tributs, in ibid., pp. 396–398) did not
go beyond stressing the necessity of money as a means of facilitating
commerce. Law, on the contrary, most decidedly repudiates the
contractual theory, and recognizing, as no author before him, the
special position of the precious metals among other commodities, he
derives the genesis of the money character of the precious metals from
their special characteristics. Thus he is the founder of the correct
theory of the origin of money (see his Money and Trade Considered,London,
1720, pp. 4ff.; also his Mémoire sur l’usage des monnaies,
written 1706–07, reprinted in Paul Harsin, ed., John Law: Oeuvres
complétes, Paris, 1934, p. 167). Law is followed, in his
opposition to the theory that traces the origin of money to a contract
between men, by Antonio Genovesi (Lezioni di economia civile, in
Scrittori classici Italiani di economia politica, Milano,
1803–05, VIII, 291–313), and A.R.J. Turgot (Réflexions sur la
formation et la distribution des richesses, written in 1766, and
reprinted in G. Schelle, ed., Oeuvres de Turgot, Paris,
1913–23, II, 558–560). Law’s attempt to explain the genesis of the
money character of the precious metals from their special nature, was
taken up and admirably accomplished in part by Cesare Beccaria (Elementi
di economia publica, in Scrittori classici Italiani di economia
politica, Milano, 1803–05, XIX, 10–18); Pietro Verri (Meditazioni
sulla economia politica, in ibid., XXII, 13–19; and Sulle
leggi vincolanti principalmente nel commercio de ‘grani riflessioni,
in ibid., XXIII, 21); Turgot (op. cit., II, 558–560;
and “Deuxième lettre á l’abbé de Cicé” in ibid.,iI, 143ff.); Adam Smith (An
Inquiry into the Nature and Causes of the Wealth of Nations, Modern
Library Edition, New York, 1937, pp. 22–29); and J.G. Busch Abhandlung
von dem Geldsumlauf,tHamburg, 1780,
pp. 279ff.).
Among more recent writers in the same tradition are: T.R. Malthus (Principles
of Political Economy, Second edition, London, 1836, pp. 50–60);
J.R. McCulloch (The Principles of Political Economy, Second
edition, London, 1830, pp. 129–136); John Stuart Mill (Principles
of Political Economy, Edited by Sir W.J. Ashley, London, 1909, pp.
483–488); Melchiorre Gioja (Nuovo prospetto delle scienze
economiche,Milano, 1815, I, 118ff.); M.H. Baudrillart (Manuel
d’économie politique, Fourth edition, Paris, 1878, pp.
252–262); Joseph Garnier (Traité d’économie politique,iSeventh edition,
Paris, 1873, pp. 309ff.); and two German economists, Ch. J. Kraus (Staatswirthschaft,tKoenigsberg, 1808, I, 61ff.),
and Aug. Fr. Lueder (National-Industrie und Staatswirthschaft,tBerlin, 1800–04, I, 48ff.).
Other German economists of the first decades of the nineteenth century
show little interest in historical research, and the problem of the
origin of money was almost completely neglected in the works of Johann
A. Oberndorfer, Karl H.L. Pölitz, J.F.E. Lotz, Karl S.
Zachariä, and F.B.W. v. Hermann. This situation continued until,
with the reawakening of historical research in the field of our
science, the question of the origin of money was again taken up by Karl
H. Rau, Johann F.G. Eiselen, Wilhelm Roscher, Bruno Hildebrand and Karl
Knies, as well as Karl Murhard somewhat earlier.
The monographs thus far published have furthered the investigation but
little. Adam Muller discusses the desire of men for the state and
thinks that the precious metals bring about this union, giving this as
his theory of the origin of money (Versuche einer neuen Theorie des
Geldes,Reprint Edition, Wien, 1922, pp. 78ff.). Johann G. Hoffmann (Die
Lehre vom Gelde, Berlin, 1838, p. 10) attributes the origin of
money again to a contract between men. Michel Chevalier (La monnaie,
in Cours d’économie politique, Paris, 1866, III, 5) does
the same thing. Samuel Oppenheim’s monograph, Die Natur des Geldes,t(Mainz, 1855), is of greater interest,
although its importance does not consist so much in a special view of
the first origin of money (pp. 4ff.), as in an exposition of the
process by which a commodity that has become a means of exchange loses
its original commodity character and eventually becomes a mere token of
value. Although I must emphatically contradict this opinion, I
nevertheless find a clearly expressed thought (or rather an
observation) in Oppenheim’s argument which sufficiently explains why we
encounter this mistake in the writings of many eminent economists. I
refer to the observation that the character of money as an industrial
metal often completely disappears from the consciousness of economizing
men because of the smoothness of operation of our trading mechanism,
and that men therefore only notice its character as a means of
exchange. The force of custom is so strong that the ability of a metal
used as money to continue in this role is assured even when men are not
directly aware of its character as an industrial metal. This
observation is entirely correct. But it is also quite evident that the
ability of a material to serve as money, as well as the custom on which
this ability is founded, would disappear immediately, if the character
of money as a material applicable to industrial purposes were destroyed
by some accident. I am ready to admit that, under highly developed
conditions of trade, money is regarded by many economizing men only as
a token. But it is quite certain that this illusion would immediately
be dispelled if the character of coins as quantities of industrial raw
materials were lost.
To Chapter VIII, Section 1. See note
5 of Chapter VIII—TR.
“either from its own nature
or from man’s design” (see Gabriel Biel, Treatise on the Power and
Utility of Moneys, translated and edited by R.B. Burke,
Philadelphia, 1930, pp. 20–21).
“the invention and institution of
money . . . comes from the law of nations.”
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