Carl Menger, from his classic treatise, on the origins of the means of payment: “As each economizing individual becomes increasingly more aware of his economic interest, he is led by this interest, without any agreement, without legislative compulsion, and even without regard to the public interest, to give his commodities in exchange for other, more saleable, commodities, even if he does not need them for any immediate consumption purpose.” [Full Article]
Source link: http://blog.mises.org/2919/the-nature-and-origin-of-money/
The Nature and Origin of Money
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In the posted passage, Menger demonstrates how those commodities that have the greatest marketability or exchangeability evolve into money, i.e., the generally accepted medium of exchange. Menger’s demonstration that the development of money was a market phenomenon and not an invention of the state is one of his major achievements. In Menger’s words: “Money is not an invention of the state. It is not the product of a legislative act. Even the sanction of political authority is not necessary for its existence. Certain commodities came to be money quite naturally, as the result of economic relationships that were independent of the power of the state.” Unfortunately, I believe it is accurate to say that many economists and others do not fully understand the significance of Menger’s argument.
However, upon again reading the posted passage, I find that one aspect of it does raise a question. Menger appears to argue that custom plays an important role in the evolution of the more marketable commodities into money. My understanding of Mises’s analysis of societal institutions such as money is that they are the result of purposive rational action by individuals. Customs exist because individuals purposively and rationally choose to establish and follow certain general modes of action or conduct; customs are not blindly adhered to by members of society, nor in this sense do they spontaneously evolve. (Professor Joseph Salerno has emphasized this aspect of Mises’s thought.) Am I misreading Menger and/or Mises, or is this a legitimate difference in their thought? Does anyone have a comment or explanation to offer regarding this matter?
There is no necessary contradiction between rational purposive action, custom, and social evolution. While individual action is purposive, social evolution is “spontaneous” because it is not centrally planned but rather results from the dynamic process of individual interactions on a massive scale.
I can’t say anything specifically about Salerno’s arguments, but it seems patently obvious that many (if not most) people blindly follow custom, i.e., without fully understanding the origins and reasons for the customs. However, their actions are still purposive in that they select ends and the means to achieve them.
To the extent that they select the proper means to achieve their ends, they are acting rationally (in the sense of procedural or instrumental rationality). To the extent that they select the correct ends, they are acting rationally in the substantive sense. Incidentally, Mises seems to have rejected the idea that Man is capable of substantive rationality insofar as he rejected the possibility of objectively identifying ultimate ends. In this I think he was mistaken.
So I don’t see any necessary conflict between Menger’s position as exemplified in this excerpt and Mises’s position (nor, for that matter, between the former and Hayek (though I think Hayek’s work needs a firmer and more explicit praxeological foundation)).
Mises classified legal & moral rules as ‘means’ (HA)just as he classified ‘society’ as a ‘means’ (Socialism.)He pointed out that while people mostly followed the customs & ideas that already existed – the great weight of ‘consuetude’ – these customs & ideas also changed. One or more people altered the way they did things, or modified some idea, & others followed. So ‘imitation’ was also a great social force (Theory & History.)He also said people never acted in full precognition of the longterm consequences of their actions (HA & Socialism).
The important point is that no one planned this kind of social institutions as they have finally appeared.
The fact the all actions are rational doesn’t mean the all the consequences of our actions can be perfectly foreseen.
These unforeseen consequences (for example that other people can copy our behaviour as they think is a better way of attaining their own ends) are what finally form social institutions.
These institutions (money, language, property rights) are means by which people achieve their ends more easily than before.
So, I think Dennis Sperduto point is the following: individuals DON’T purposively and rationally choose to establish and follow certain general modes of action or conduct, but they, otherwise, choose to adhere them. If some institutions were a bad mean for people’s end, this institution wouldn’t be followed any more, what would imply, in fact, some sort of evolution.
To those who responded to my comment regarding Menger’s explanation of the origin of money, your thoughtful remarks are much appreciated. Hopefully, in the not too distant future I will be able to fully digest them and respond in a constructive manner. Again, thanks for your responses.
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