American Monetary Institute

A Refutation of Menger’s Theory of the “Origin of Money”

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The paper challenges Menger on three 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.


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. 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.


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.

The Continuing Importance of Menger’s Theory of the Origin of Money is demonstrated in recent books by the way that Austrian/Libertarian authors supporting Free Banking usually begin by asserting Menger’s theory as accepted wisdom. Robert Nozick used Menger’s “Origin” to launch (p.18) his book, Anarchy State and Utopia, a Libertarian “bible” that put Libertarianism back on the intellectual map in 1974.

A chief failure of economics is its continuing inability to define a valid concept of money consistent with logic and history.

Since money touches every aspect of economics, this indefiniteness has spread to other aspects of the science, leading to basic moral and political questions as the proper monetary role of government and of institutions such as the Federal Reserve System.

It is still being argued whether the nature of money is a concrete power, embodied in a commodity such as gold; or whether it is an abstract social invention – an institution of the law.  Does it obtain its value from the material of which it is made, or from its acceptability in exchanges due to the sponsorship or legal requirements of the government?  Or is it some kind of hybrid “economic good” starting as a valuable commodity and evolving “in its more perfect forms” into a socially valued token?

These questions are of great practical importance, and lead directly to conclusions about the proper role of government in monetary matters; will shed light an whether the power to create and control money should be lodged, as at present in an ambiguously private issuer – the Federal Reserve Systems member banks.  An accurate concept of money will indicate whether “free banking” should be promoted, tolerated or should be strenuously blocked.

For if money is primarily a commodity; which is convenient for making trades; which obtains its value out of “intrinsic” qualities; then it can be more a creature of merchants than of governments.  It becomes possible to regard its evolution as some unconscious process, not involving human planning or institutional decision.  For example no decision would have been made that wheat, or apples were valuable as food – they simply were, and over time it would have become apparent to all, either through experience or example.

On the other hand if money in its origins and development, or even just in its most perfect forms, is properly an abstract social institution embodied in law – i.e. a legal institution, then it is more a creature of governments than of merchants.  Its evolution and possibly even its origin would have been matters of conscious decision, whether by ancient temple cults, governments, or merchants.  It would have been one of the greatest human inventions.

The three methodological approaches to these questions are:

The Theoretical Method: Using a’ priori principles held to be accurate, deductive reasoning has been applied to the questions surrounding money.  This would be embodied in what von Mises called “praxeology”, wherein “The proof of a theory is in its reasoning”[i].

This is the time honored method of mathematics, and is important in moral reasoning. It is a primary tool of the Austrian school. However it is not especially useful in discovering historic events.  Thus while it can be helpful on some aspects of money, it may not help much with the origin question.

Empirical Method: Based on observation and cataloging of data and on experimentation if possible, under controlled, repeatable conditions, where variables can be observed and their effects noted.  Logical reasoning is applied to the data to “explain” them by theoretical constructs.  More often than admitted the theoretical constructs come first, with researchers later searching out the facts.  The great advances in the physical sciences of the past three centuries are laid to the empirical approach or the scientific method.

In the study of monetary systems this approach must rely on history and in some cases on archeology and numismatics for the observed facts, for two reasons: first, only history provides mankind’s actual experience with money; secondly, as the effects of monetary systems often require several generations to become apparent, a monetary system must be observed over time for its good or bad effects to become known.  Note that we have introduced a moral criteria in the evaluation of monetary systems, to which we shall return.  Now applying the Scientific Method to historical study is limited. Experiments can’t be created where variables are controlled. Still, the historical facts contain the data to which theoretical constructs must conform. William Ridgeway, Alexander Del Mar, George Knapp, and at times Milton Friedman have been among those utilizing an historical or archeological approach.

The Anthropological Approach falls within the empirical method, and on the origin of money, is summarized by A.H. Quiggin’s work, A Survey of Primitive Money:

“If … attention is turned to what is happening at the present day (1949) among the less advanced peoples, a clearer idea can be obtained of the process of evolution, with the possible discovery of the reason why certain objects became ‘money’ while others with equal claims do not.”[ii]

Animosity Between Empirical And Theoretical Researchers

There has existed a certain animosity between practitioners of these methods:

Ludwig Von Mises:

“Knapp … as one of the standard bearers of historicism in political economy, had thought that a substitute for thinking about economic problems could be found in the publication of old documents.”[iii]

Alexander Del Mar:

“As a rule political economists … do not take the trouble to study the history of money; it is much easier to imagine it and to deduce the principles of this imaginary knowledge.”[iv]


“I hold the attempt to deduce (the nature of money) without the idea of a state to be not only out of date, but even absurd.”[v]

One reason for this friction is that normally historicists reach an abstract view of money, and conclude that government has an important role in monetary matters; and normally those who conclude that concrete or economic aspects put money primarily in the realm of merchants, are theoreticians.

With this introduction, we are better prepared to consider Carl Menger’s effort in THE ORIGIN OF MONEY, published in June, 1892.

Carl Menger’s Effort and Method In The Origin Of Money[vi]

While the origin of money need not necessarily answer our questions on the nature of money, it might at least provide valuable clues.  On examination however, and contrary to normal expectations from the title of the piece, Menger’s effort does not utilize an empirical approach, in any except the most superficial sense. This becomes clear when Menger makes no mention of places or times, in support of his thesis, even generally.

Indeed the only historical references are footnoted away to one of his earlier works, PRINCIPLES OF ECONOMICS[vii], and only a few pages are referenced.  Upon examining them we find brief descriptions of various commentators views on the origin of money, including Plato and Aristotle from antiquity, and Paulus from the Byzantine Roman Empire.  The list continues through the commentators of the middle ages, But these views as Menger correctly points out are based on Aristotle, and bring nothing new to the study.

In the referenced Menger work, he finally comes to what he considers historical support for his thesis, but in order to read it we are again footnoted off to yet another work, John Law’s MONEY AND TRADE CONSIDERED.  Only a few pages are indicated, but Menger assures us that law has correctly figured out the question and is therefore the originator of “the correct theory of the origin of money”, which coincides with Menger’s.

Here we observe a rhetorical device Menger has employed.  Had he plainly stated in his theory article, that John Law’s “origin” was the same as his, many readers would react negatively, because of Law’s reputation as having destroyed France’s monetary system in the 1720′s.

However, the indicated pages of Money and Trade Considered, provide no historical material on the origin of money, but give more supposition, deduction, and description of the physical properties, mainly of silver, and its suitability as money.[viii]

In fact, All of Menger’s Historical Evidence Is Against Him

There are only 4 pieces of what could be considered historical evidence presented by Menger – the first three being the commentaries of Plato, Aristotle, and Julius Paulus.  All three of these sources describe systems and concepts 180 degrees counter to Menger’s thesis.  These authorities were closer to the ‘origin’ event than we are, and we may reasonably expect them to have been aware of whatever accounts were available in the literature coming down to them regarding the possible origin of money.  Literature which may have been lost to us through the extensive censorship of Greek and Roman works by Imperial Rome, or in the sacking of Byzantium. That such censorship occurred in the monetary area appears likely.  For example, in the Athenian Constitution coming down to us, we can find out how the garbage was collected, but we will search in vain to learn how Athens state coinage system was run.

Even barring that possibility, these three observers, being from an early period (4th century BC, and the 4th century AD, their accounts of their own systems could lend valuable clues.

Plato’s description:

Money is “a token for purposes of exchange.”[ix]

Aristotle’s description:

“All goods must therefore be measured by some one thing… now this unit is in truth demand, which holds all things together … But money has become by convention a sort of representative of demand; and this is why it has the name ‘nomisma’ – because it exists not by nature, but by law (nomos) and it is in our power to change it and make it useless.” (Nicomachean Ethics,1133A)

Thus Menger is incorrect when in endnote 5, P.21 of the Origin of Money, he claims nomisma is based on the shape of the coin. The crucial nature of this “error” does strain belief.

Julius Paulus’ description:

“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 its substance by society.  Hence its exchange value is based, not upon the substance itself, but upon its nominal value.”[x]

This historical evidence against his position does not phase Menger in the least.

Isolating Menger’s Method

Indeed, Menger’s only historically based evidence is his assertion that:

“tested more closely, the assumption underlying (the governmental origin of money) gave room to grave doubts…(as) no historical monument gives us trustworthy tidings of any transactions either conferring distinct recognition on media of exchange already in use, or referring to their adoption by peoples of comparatively recent culture, much less testifying to an initiation of the earliest ages of economic civilization in the use of money.”(p.7, emphasis added) We aren’t told exactly who had these “grave doubts”.

Apparently then, Menger accepts the importance of factual historical evidence, and even demands it from competitive theories!  But he presents this evidence not to support his theory but to undercut his opposition.

Thus we can argue conclusively that Menger arrives at his thesis only through theoretical, not historical facts, and does so in spite of those historical indications available to him.

Menger’s Reasoning and Conclusions

Menger sets out to explain the adoption of the precious metals as money by market forces, excluding the intervention of governments to make them a “product of convention and authority.”

He starts by asserting the difficulties of barter:

“But how much more seldom does it happen that these two bodies meet!  Think, indeed, of the peculiar difficulties obstructing the immediate barter of goods in those cases, where supply and demand do not quantatively coincide.” (p.8)

Menger’s use of the “spread”

Menger points out that one usually cannot immediately resell a purchased item at the purchase price, i.e. that if one is buying or selling, rather than making a market professionally in the commodity, one normally purchases at the asked price and sells at the bid price.  The difference between these prices is called the “spread.”

Menger’s Definition of Liquidity

Menger measures liquidity by the tightness of the spread between bid and asked prices, and notes that some commodities are more liquid than others:

“If we call any good … more or less liquid according to the greater or less facility with which they can be disposed of at a market at any convenient time at current asked prices, or with less or more diminution of the same, we can say…that an obvious difference exists in this connection between commodities.”(p.11)

Its important to note that Menger qualifies this on the next page: “again, account must be taken of the quantitative factor in the liquidity of commodities.”(P.11)

He then posits that a trader would tend to barter goods for more liquid ones, even if he didn’t need the particular commodity, in an effort to eventually be able to barter the more liquid items for actually desired items, gaining “the prospect of accomplishing his purpose more surely and economically than if he had confined himself to direct exchange.”…

“Each individual would learn…to take good heed that he bartered his less liquid goods for those special commodities…qualified…to ensure to the possessor a power…over all other market goods at economic prices.”(p.13)

By this market process, according to Menger, the most liquid commodities slowly, starting with the most discerning people, achieve the status of money, without “general convention or a legal dispensation” making it so. Then once certain commodities become “money”, they become even more liquid than other goods:

“The effect produced by…goods…becoming money is widening the chasm between their liquidity and that of all other goods.  And this difference in liquidity ceases to be gradual altogether, and must be regarded in a certain aspect as something absolute.” (p.17)

According to Menger it is “only from this point that the state” intervenes:

“And the ground of this distinction we find, lies essentially in that difference in the liquidity of commodities set forth above – a difference so significant for practical life and which comes to be further emphasized by intervention of the state.”(p.17)

It should be significant for modern researchers who embrace Menger’s work; and of relevance to our initial questions, that even assuming Menger was correct, the government is involved in money at a very early period, in all likelihood, just before the actual introduction of coinage.  Menger may have been aware that there are no monuments – no identifiably merchant coins extant whatsoever in the disciplines of archeology, or numismatics.  Furthermore, the reason he postulates for government involvement, is not nefarious, but due to the great significance the money designation has upon practical life.  Champions of Menger have taken neither of these points to heart.

That is Menger’s theoretical construct.  He gives 6 causes of liquidity; 5 space or place factors affecting liquidity; and 7 time limits to a commodity’s liquidity. (see Appendix 1)


Critique of Menger’s Method

For Menger to attempt to discern an historical event, or even an historical process utilizing only a’ priori reasoning must have taken some daring.  Logical reasoning alone is not a promising approach to such questions, which involve numerous specific time, place, and cultural variables, of unknown importance.

Logical reasoning can be used to explain how and why factual events are related and develop; it can point to areas where subsequent observation can establish facts; but logical reasoning in itself cannot establish or discover the fact.  That must be done by observation.

Where Menger draws upon generally accepted “facts”, they are highly selective, often inaccurate, and universally from much more modern periods, and thus have little bearing on his thesis. (see below)


The Circularity of Menger’s Reasoning

There is a degree of circularity of reasoning in Menger’s causes of liquidity and time and place factors.  Remember, he is supposed to be defining causes of liquidity of a commodity, not causes of acceptability of a money.  Of Menger’s 6 causes (see Appendix 1), points 1,2,and 6 really reduce to one point – the effective demand for the commodity.  Point number 2 furthermore should have referred to the trading power rather than purchasing power, as he is discussing a pre-monetary situation.  Cause #6 would be entirely reflected in the effective demand.

Causes #3 and #4 are reducible to the supply of the commodity.

So we are left with 3 causes of liquidity – supply, demand, and his cause #5, the development of the market and of speculation in the commodity.

The circularity arises from the fact that cause # 5 can be viewed as much as a defining element of liquidity, as a cause of it. And indeed Menger uses it in that way!  This can be seen in his use of quantity or volume of trading, as a qualification of liquidity:

“Again, account must be taken of the quantitative factor in the liquidity of commodities.”(p.11)

But the quantitative factor is a part of cause number 5 – the development of markets. Thus the tight spread and volume traded in the market (quantity) becomes his definition of liquidity.  Thus liquidity, by one defining element of it (development of market mechanisms) causes liquidity by another defining element of it (the tight spread).

So liquidity is caused by liquidity.  I stress that I’m not

referring to the increased liquidity which a money commodity would exhibit by virtue of its becoming money.  We are considering its liquidity before it would have become money.

Thus to really explain a commodity’s liquidity, he would have to explain why supply, demand, and markets develop for a commodity.  If you use only liquidity to explain them, you are in a circle.  We know why markets develop for cattle or wheat.  But has Menger really explained why markets would have developed for “These little discs… which in themselves seem to serve no useful purpose” (His words, P.6) except if they were already money?

Critique of Menger’s Choice of the Spread as the Money Determining Factor

Menger’s use of the spread as the measure of liquidity, and therefore the money determinant, because of the ability to realize ‘economic’ prices for goods traded in markets would only be one factor, and primarily a short term one.  Probably a more important factor is volatility, or rather the lack of it – stability.

Consider the two hypothetical situations as depicted in graphic form below.  Commodity A has a tight spread – high liquidity according to Menger, but a “value” in terms of another commodity – say wheat or olives – which fluctuates substantially over time. i.e. it has a high volatility.


COMMODITY G (perhaps gold) – solid line is bid “price”, dotted line is asked “price”

value in

wheat or

olives       _____________________________________________________________________

time, in days, weeks, months

COMMODITY C (perhaps cattle) has a wider spread, but lower volatility solid line is bid “price”,

dotted line is asked “price”

value in

wheat or

olives      ____________________________________________________________________

time, in days, weeks, months

Assume the quantities traded are “adequate” and substantial.

While commodity A is more liquid by Menger’s definition, clearly commodity C could be more convenient and suitable as a commodity money candidate for a given society, because its price is much more stable. Thus the spread alone, may not determine which commodity evolved into money, since spread alone, or liquidity alone cannot determine or cause stability, and stability can clearly be a more important factor for realizing “economic prices” than the spread.  This stability factor could then foster liquidity. Other factors than the spread would have an influence on the evolution of a money commodity.

If the objection is made that the situation depicted above could not exist for a’priori reasons, it could only be on the grounds that a tight spread must be accompanied by low volatility.

But it can be argued that in a primitive situation, locally produced and consumed goods such as cattle and grain, would tend to be less volatile especially in relation to each other, than goods such as precious metals, that are more likely to be dependent on more sophisticated, even foreign markets; more sophisticated means of transport; and more sophisticated and possibly more capricious traders/arbitrageurs.  To this must be added the extra-cultural factors, and the potential for cultural/societal conflict or even warfare in an international setting.

This could be altered if a major force or forces in the markets, price fixed the precious metals, gold in particular, against a local commodity , and then used its deep pockets and/or political power to maintain that fixed parity, whenever challenged.  This would be especially effective if the commodity against which it fixed gold’s value, were the dominant money commodity already selected by a society, such as cattle.  We’ll discuss empirical evidence below that something like this may have occurred.

Critique of Mengers views on the Stability of Precious Metals

Menger’s 2 sentence discussion of Aristotle’s and Xenophon’s observations that precious metals were steadier in price than other goods, completely misses the point that gold and silver were already being used for money.  Thus the observations do not apply to them as commodities evolving into a role as money, but to commodities which were already money.

Menger asserts that:

“This development (becoming money) was materially helped forward by the ratio of exchange between the precious metals and other commodities undergoing smaller fluctuations…than that existing between most other goods – a stability which is due to the peculiar circumstances attending the production, consumption and exchange of the precious metals, and is thus connected with the so called intrinsic grounds determining their exchange value.”

Note that Menger deals with the stability factor as separate from the liquidity factor.

The Volatility of The Precious Metals Against Menger’s Thesis

In fact, historical experience with the precious metals, in cases where they were and were not money, has demonstrated both periods of abrupt short lived changes in value in terms of other commodities, and of long drawn out changes where gold and silver lost as much as 80% of their value, and never recovered it.

For example in Greece, after Alexander’s conquests and importation of captured gold, prices are reputed to have risen over 50%.  In Italy, we read in Mommsen’s classic work of “The severe gold crisis – as about the year 600 AU…. when in consequence of the discovery of the Taurisian gold seams, gold as compared with silver fell at once in Italy by about 33%”[xi]. Later, with the plunder of precious metals from the Americas, prices in Spain rose about 300%, and prices in Holland and England rose by as much as 500 %, over about a century and a half.  William Jacob’s classic, The Precious Metals, found a 470% increase in prices in France, from 1500 to 1589; and a 400% increase in the Oxford Tables corn prices in England.[xii]

In more recent years, we have observed that the precious metals, on modern markets have been very volatile commodities.  Stanley Jevons pointed out in Money and The Mechanism of Exchange[xiii] that gold had been undergoing substantial changes in value in the 18th and 19th centuries:

1789 – 1809         fell 46%

1809 – 1849     rose 145%

1849 – 1875         fell 20%

This volatility has increased in the 20th century.

According to Milton Freidman and Anna Schwartz, from June 1914 to April 1917, the U.S. money stock rose 46%.  Eighty seven percent of this increase was from gold stock increases, and a 65% rise in wholesale prices resulted.  Gold, which was money, thus lost over half its value in a three year period, by this measure.[xiv]

1914-19                     fell 65%

For more recent periods, when for all practical purposes, gold had lost its governmental sanction as money, it became even more volatile.

From 1971 to 1974 we saw gold increase over 500% from $38 to $200 an ounce.

In 1975, we saw gold drop almost exactly 50%, from $ 200 an ounce to $103.

We then saw an increase of over 700% to over $850 an ounce, and then a multiyear decline to $232. Now its reached $570 an ounce! It’s not possible to explain these movements as just due to changes in the dollar.  Gold is volatile!


The East-West Dichotomy of the Gold Silver Ratio Contra Menger

In addition, Menger’s statement on the stability of the ratio of exchanges of the precious metals and other goods, would require a similar stability in the gold-silver ratio.  Menger is apparently unaware of the great dichotomy in the gold – silver ratio itself, between east and west.

The ratio in the west was generally around I to 10 up to I to 14 in Ancient Greece, and was later fixed by decree at I to 12 throughout the Roman Empire.  However, in the east – in India, China and Japan, as well as in Moslem Africa and Moslem Spain, the ratio was usually closer to 1 to 6 or 7. The immense importance of this fact of the ratio dichotomy, to monetary theory has gone unrecognized by both classical and modern economists, with the exception of Alexander Del Mar.[xv]


Historical Facts are Against Menger’s Assertion of the Universal Use of Gold and Silver as Money

Menger makes a typical assertion regarding money:

“The reason why the precious metals have become the generally current medium of exchange among all peoples of advanced economic civilization, is because their liquidity is far and away superior to that of all other commodities, and at the same time because they are found to be specially qualified for the concomitant and subsidiary function as money.” (p.17)

In reality, some very important societies of early and late antiquity did not utilize gold or silver in their monetary systems.  For example:

In Sparta, Lycurgus, in the eight century BC instituted a monetary system reputed to be based on the Cretan system, utilizing 600 gram (about 1.3 pounds) iron ingots, called Pelanors.  The system remained in use for approximately 3 1/2 centuries – a period during which Sparta was a premier Hellenic power. (see Plutarch’s PARALLEL LIVES , Lycurgus and Numa)

In Rome, from its founding in the 8th century BC. until about 207 BC, a copper (bronze) money system was utilized, which during the Republican period appears to have been nominally valued, by law, not by weight.  Silver coinage first introduced by the patricians as legal tender in about 221 BC, then dominated.  Though gold was minted in a Punic war emergency period, it did not become the monetary standard in Rome until after the fall of Republican Rome, and the rise of the dictatorship of the Caesar’s.  Julius Caesar placed the empire on a gold standard by decree when he assumed power, making it a legal tender, and raising its value against silver, from I to 9, to 1 to 12; where it roughly remained for the next 1200 years. See Chapters 1-3 of The Lost Science of Money.[xvi]

The rise of the Caesar’s finished off what was left of the separation of church and state.  The emperor was not only a dictator, but a deity.  His religious office was called the Pontifex Maximus, later in the eastern empire, the Basileus.  The control of money was vested in this religious office of the emperor for 12 centuries. (see Alexander Del Mar, History of Monetary Systems[xvii], and Del Mar’s Middle Ages Revisited[xviii]; also Peruzzi’s, Money in Ancient Rome[xix])

In China, Quiggin notes that “It is noteworthy that Chinese coins are, and have always been, almost exclusively of bronze,…gold and silver, the usual metals for coins elsewhere, were not current in China.”

In Peru, “The lack of any conception of money value in the vast hoards of Inca gold seems as strange to us as it did to the Spaniards 4 centuries ago.  It was all dedicated to religious service and neither external trade nor money were included in the strictly regulated state.”[xx]

Thus gold and silver were far from universally used as money among advanced nations.


Ridgeway’s Archeological Work is Against Menger’s Thesis

Perhaps not coincidentally, Menger’s Origin of Money, reworked from an earlier book, was issued in the same year that Sir William Ridgeway’s The Origin of Metallic Weights and Standards  was published.  Ridgeway’s work, making extensive use of archeology, numismatics, and historical documents, indicates an institutional origin of money rather than a market origin, and has become a classic in the field.

One of the main points developed by Ridgeway is that early gold coinage was designed to represent the ox/cow commodity money unit, already recognized in most advanced societies:

“The gold unit represented originally simply the conventional value of the cow as the immemorial unit of barter.”[xxi]

Ridgeway has catalogued a remarkable consistency in the coinages of the Mediterranean city states.  A large number of issues are consistent at 130-135 grains of gold. (8.4 grams)(see Ridgeway’s chapters 5 and 6)

Here is a partial list of 130 grain gold coins:

Croesseus’ gold stater (c.550 BC)………………………………128 grains

Darius’ Persian Daric (c.505 BC)………………………………130 grains

Rhodos gold coin (5th century BC) ………………………130-135 grains

Thasos gold coin (411 BC) ……………………………….130-135 grains

Athens gold coin (about 400 BC)………………………………130 grains

Macedonian Stater of Philip II (345 BC)……………………….130 grains

Babylonian and Phoenician coinage……………………………260 grains

A double 130, perhaps indicating that a yoke (pair)

of oxen was more normal in this advanced area.

Here then may be the historical “monuments” giving us “trustworthy tidings” of a transaction conferring distinct recognition on media of exchange. Ridgeway considered this phenomena to represent a merging of two traditions, with the gold unit being based on the ox/cow unit.  Sometimes the coins had representations of an ox on them. Why 130 grains?  Ridgeway speculated that this was about what would fit in the palm of your hand.  A coin that was not so small as to be easily dropped or lost; nor so large as to employ more gold than necessary, to be convenient.

The importance of this to Menger’s thesis is that this 130 grain standard was a “convention”, and not just of one government, but of several of them.  Menger would have to argue that the gold had already become a money commodity before the states took over.  But cattle was already there as a money unit.  If gold was in the process of supplanting the old money unit, without institutional conventions, there is no way to explain the international 130 grain consistency.  If it had already supplanted cattle, there is no reason for it to symbolize or represent a cows value.  What it may really represent is a way to give 130 grains of gold, the stable value of a cow!

Ridgeway’s work emphasizes the importance of the ancient temple cults, in both economic and monetary matters:

“The Temple shrines of Delphi and Olympia, Delos and Dodara were centers not merely of religious cult but likewise of trade and commerce… merchants and traders taking advantage of the assembling together of large bodies of worshippers from various quarters, to ply their calling and to ‘tempt’ them with their wares.  The temple authorities encouraged trade in every way; they constructed sacred roads, which gave facility for traveling at a time when roads were almost unknown … and placed those who traveled on them under the protection of their god… at the time of the sacred festivals all strife had to cease… offering a breathing space for trade and commerce – hence the probability is considerable that the art of minting money… first had its birth in the sanctuary of some god.”[xxii]

Laum’s Work on Religion is Against Menger’s Thesis

Investigating the temple cult-monetary link, Bernard Laum’s Hieleges Geld (Holy Gold) was published in 1924; an important German work. Some of its conclusions are:

“The roots of money lie in the cult, originating first out of sacrifices to the gods, then payments to the priests.”…

“The history of money is the history of the secularization of the cultic forms…”

“The Greek states became the creators of money because they were the holders of the cult.”

Then commenting directly on Menger’s theory:

“The theorist claims general validity for his deductive statements, because he has come to his results in the ‘exact’ way.  The historian is more modest.  He will not assert that Menger’s theory never and nowhere materialized in reality.  Had the ‘homo oeconomicus’ of today appeared in the world 3,000 years ago, he would have certainly invented money according to Menger’s rationalist principles.  I only claim that the historical origin of money does not correspond with this theory… according to our researches money is a creature of the religious-political legal rights system… I know very well, that mainly in the latter phases, profane (economic and fiscal) factors determined the development of money just as much as religious factors, but it is difficult to draw a line separating the two spheres.”[xxiii]


Anthropological Evidence Contra Menger

In 1949, A.H. Quiggin’s study of money in contemporary primitive societies – A Survey of Primitive Money – was published.  Her findings are universally against Menger’s thesis, she wrote:[xxiv]

“But it would be hard to find any among the simpler societies consciously troubled by the inconveniences of barter, and money is usually the introduction of the trader and troubles from outside.” (P.5) and

“The objects that are the nearest approach to money-substitutes may be seen to have acquired their functions by their use, not in barter but in social ceremony.” (p.12) and

“Where a cattle standard exists, this is adequate and discourages the growth of primitive currencies… it is noteworthy that the largest and most varied collections of primitive money come from cattle – less areas.” (p.277) and finally

“The evidence suggests that barter – in its usual sense of exchange of commodities – was not the main factor in the evolution of money.  The objects commonly exchanged in barter do not develop naturally into money and the more important objects used as money seldom appear in ordinary barter.  Moreover the inconveniences of barter do not disturb simple societies… this is the state of affairs over about half the world at the present day (1949) …

… the use of a conventional medium of exchange, originally ‘full bodied’ but developing into token money, is first noted in the almost universal customs of ‘bride price’ and ‘wer geld’ (blood money for deaths and injuries) … It is not without significance that in any collections of primitive currency the majority of the items are described as used in bride price.” (p. 321,322)

We recognize the limitations of this anthropological approach – it is not possible to establish history through such contemporary studies – but the evidence mounts up.

That ends our critique of Menger’s Origin, or perhaps it is more accurate to say our refutation of Menger’s theory.  This has deeply negative implications for the Austrian School, for the Libertarians, and for the free bankers, which they would be well advised to investigate now. Most of them begin their monetary expositions with reliance on Mengers theory.


We have called Menger’s theory on the origin of money into question on methodological , rational, factual, and anthropological grounds.

We have shown that he proceeded using only deductive logic, and have noted the problems with doing so.

On rational grounds, we have shown a circularity of his reasoning in his determinations of liquidity, and have called into question his use of liquidity rather than volatility as the primary factor determining the evolving of money, even within his system.

On factual grounds, we have shown that some of his closely held general views of gold and silver money are incorrect, and we have presented and referred to factual evidence which indicates an alternative (and more probable) path to the development of money.

Stephen A. Zarlenga

Director, American Monetary Institute

V.    APPENDIX 1 The Causes of Different Degrees Of Liquidity

From Menger’s ORIGIN OF MONEY, available as monograph # 40, from the CMRE, BOX 1630, Greenwich, Conn. 06836.

The degree to which a commodity is found by experience to command a sale, at a given market, at any time, at prices corresponding to the economic situation (economic prices), depends upon the following circumstances.

1.     Upon the number of persons who are still in want of the commodity in question, and upon the extent and intensity of that want, which is un supplied, or is constantly recurring.

2.     Upon the purchasing power of those persons.

3.     Upon the available quantity of the commodity in relation to the yet unspoiled (total) want of it.

4.     Upon the divisibility of the commodity, and any other ways in which it may be adjusted to the needs of individual customers.

5.     Upon the development of the market, and of speculation in particular. And finally

6.     Upon the number and nature of the limitations imposed politically and socially upon exchange and consumption with respect to the commodity in question.

We may proceed in the same way in which we considered the liquidity of commodities at definite markets and definite points of time to set out the spatial and temporal limits of their liquidity. In these respects also we observe in our markets some commodities, the liquidity of which is almost unlimited in space or time, and others the liquidity of which is more or less limited.

The spatial limits of the liquidity of commodities are mainly conditioned-

1)     By the degree to which the want of the commodities is distributed in space.

2)     By the degree to which the goods lend themselves to transport, and the cost of transport incurred in proportion to their value.

3)     By the extent to which the means of transport and of commerce generally are developed with respect to different classes of commodities.

4)      By the local Extension of organized markets and their intercommunication through arbitrage.

5)     By the differences in the restrictions imposed upon commercial intercommunication with respect to different goods, in inter local and, in particular, in international trade.

The time-limits to the liquidity of commodities are mainly conditioned -

1)     By permanence in the need for them (their independence of fluctuation in the same).

2)     Their durability, i.e. their suitableness for preservation.

3)     The cost of preserving and storing them.

4)     The rate of interest.

5)     The periodicity of a market for the same.

6)     The development of speculation and in particular of time bargains in connection with them.

7)     The restrictions imposed politically and socially on their being transferred from one period of time to another.

Dear Reader- be sure to read our critique of Menger’s points here, where we show how they all reduce merely to supply/demand.



[i] Von Mises, Ludwig. Theory of Money & Credit. 1912. Capetown: J.Cape, 1934, p.82.


[ii] Quiggin, A.H. Survey of Primitive Money. London: Metheun, 1949, p.12.


[iii] Von Mises, Ludwig. Cited above,p.478.


[iv] Del Mar, Alexander. History of Monetary Systems. 1895. Repr., NY: A.M. Kelley, 1978. p.101.


[v] Knapp, George. State Theory of Money. 1905. London: on behalf of Royal Economic Society by Macmillan, 1924, p.vii.


[vi] Menger, Carl. Origin of Money, C.M.R.E. monograph # 40, 1984. translator not noted.


[vii] Menger, Carl. Principals Of Economics. Trans. J. Dingwall; NY.; NYU Press, 1976


[viii] Law, John. Money and Trade Considered. London: W. Lewis, 2nd edit, 1720.


[ix] Republic, II, 371, Jowett trans.  The Dialogues of Plato, London, Oxford U. press, 1892 III,52.  As quoted in Principles of Economics Appendix


[x] L.I. Dig. de Contr.  EMT.IE3,1; as quoted in appendix, Menger’s PRINCIPLES OF ECONOMICS


[xi] Mommsen, Theodore; The History of Rome. Trans. W.P. Dickson. 5 vol. NY: Scribners, 1903, Vol. 4, p.495


[xii] Jacobs, William. The Precious Metals. 1831. Repr., NY: A.M. Kelley, 1968, p. 70 – 100, and p.388-391


[xiii] Jevons, Stanley W. Money and the Mechanism of Exchange. 1875. NY: Appleton, 1897, p. 313-330.


[xiv] Friedman, Milton and Anna Schwartz. A Monetary History of the U.S. 1867-1960. Natl. Bureau of Econ. Res., Princeton Univ. Press, 1971,p.195-209.


[xv] Del Mar, Cited above, Appendix A


[xvi] Zarlenga, Stephen. The Lost Science of Money. NY: American Monetary Institute, 2002, Chapters 1-3.


[xvii] Del Mar, cited above, Ch.5.


[xviii] Del Mar, Alexander. Middle Ages Revisited. NY: Cambridge Encyl., 1900, appropriate chapters.


[xix] Peruzzi, Emilio. Money in Ancient Rome. Academia Toscana Di Sciencze E Lettere, 1985.


[xx] Quiggin, cited above, p.229, p.314


[xxi] Ridgeway, William. Origin of Metallic Weights and Standards. Cambridge, 1892, p.155.


[xxii] Ridgeway, cited above, p.215


[xxiii] Laum, Bernard. Heileges Geld. Section trans. by Stephanie Watjen.Tubingen: J.C.B. Mohr, 1924.

[xxiv] Quiggin, cited above, pages noted in text.