http://monetary.org/refute.htmA REFUTATION OF MENGER'S THEORY OF THE ORIGIN OF MONEY Here below is a two page summary plus communication with the Austrian SchoolA challenge to the
Austrian School of Economics and the Ludwig Von Mises Institute. Of much more general importance than it sounds, obeisance is universally paid to Menger's 19th century re-incarnation of John Law's theory of money, by present day Austrian economists. Menger's origin theory is also at the base (often explicitly) of much so-called libertarian thinking and writing today. For example Robert Nozick uses it to launch his book Anarchy, State, And Utopia, (p.18) one of the Libertarian's "bibles".
This paper most likely deals a "death blow" to this core thesis of the Austrian School, as formulated by Carl Menger, the school's founder. In effect the Austrian's are left without a viable theory of money. It would be difficult to imagine that one could be provided by Von Mises a more confused and self contradictory book than THE THEORY OF MONEY AND CREDIT. The understandable reluctance of "Austrian gatekeepers" to address this issue is documented below.
SYNOPSIS:
The paper challenges Menger on three grounds:
METHODOLOGICAL GROUNDS:
Though it is generally assumed that Menger's theory is at least in part derived from historical evidence, the paper demonstrates that its derivation is entirely theoretical, by showing that all the historically based evidence cited by Menger is 180 degrees counter to his theory. The paper points out the inappropriateness of attempting to divine an historical event or process with only deductive logic.
RATIONAL GROUNDS:
The paper points out that even within the framework of Menger's scheme, there are two fatal flaws. First the circularity of his reasoning in determining his causes of liquidity, which arises from his use of the "development of the market and of speculation in a commodity" as a cause of liquidity, when in fact it is a definition of liquidity and even Menger uses it as such. The paper explains the crucial difference. This is not quite an example of what has been called "Weiser's Circle". Second, the paper points out that within Menger's scheme, it is not liquidity, but volatility (or lack of it) which is much more important.
FACTUAL GROUNDS:
The paper shows that some of Menger's closely held general views of the stability of gold and silver and their universal use as money, are simply false. In addition the existence of the millennia long dichotomy in the gold-silver ratio between east and west, which Menger seems to be unaware of, appears sufficient to doom his theory.The paper presents some of the factual evidence gathered by William Ridgeway, in the ORIGIN OF METALLIC WEIGHTS AND STANDARDS; by A.H. Quiggin in A SURVEY OF PRIMITIVE MONEY; by Paul Einzig in PRIMITIVE MONEY; and by Bernard Laum in HEILEGES GELD; all as an indication that an institutional origin of money, whether religious or social, is much more likely to have occurred than Menger's assumed market origin.
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