From Spontaneous Social Institution to Currency: Understanding Money’s Evolution
When discussing the role of bitcoin in the world of finance, it’s important to consider how something transitions into a monetary unit. According to Carl Menger, the father of Austrian economics, money is not something imposed by the state but rather a spontaneous social institution that arises from individuals pursuing their self-interest. In his book “On the Origins of Money,” Menger explains that certain commodities become more desirable for trade due to their attributes like durability, transportability, and divisibility. Over time, these commodities gain universal acceptance as a medium of exchange because they are highly saleable.
“With the extension of traffic in space and with the expansion over ever longer intervals of time of prevision for satisfying material needs, each individual would learn, from his own economic interests, to take good heed that he bartered his less saleable goods for those special commodities which displayed, beside the attraction of being highly saleable in the particular locality, a wide range of saleableness both in time and place.”
The Importance of Medium of Exchange Function
Applying Menger’s theory to bitcoin implies that its ability to serve as a medium of exchange should be prioritized over its role as a store of value. Austrian economists Ludwig von Mises and Murray Rothbard also emphasize this point, stating that the medium of exchange function precedes the store of value function in the transition to money. They believe that a commodity must first establish itself as valuable over time before becoming widely accepted as a medium of exchange and eventually a store of value.
In September 2022, authors Kristoffer Mousten Hansen and Karras Lambert further elaborate on Mises’ perspective in an essay. They argue that bitcoin enthusiasts who align with the Austrian school should prioritize the medium of exchange function over the store of value function. They believe that active usage of cryptocurrency is crucial for it to become a common medium of exchange, contrary to the “HODL forever” mentality that focuses solely on storing value.
Deviation from the Austrian School’s Definition
The prevalent store of value-centric perspective in the crypto world can be traced back to a missive written by computer scientist Nick Szabo. However, this perspective deviates from the Austrian school’s definition of the origins of money. Menger, Mises, and Rothbard all emphasize the importance of actively using a commodity as a medium of exchange to establish its status as money. By downplaying active usage and favoring long-term holding, individuals go against Mises’ recognition that business usage alone can transform a commodity into a common medium of exchange.
Hot Take: Prioritizing Medium of Exchange Function for Bitcoin’s Success
When considering bitcoin’s role as a currency, it is crucial to prioritize its ability to serve as a medium of exchange. According to Menger, Mises, and Rothbard, this function takes precedence over its role as a store of value. Bitcoin enthusiasts should focus on actively using cryptocurrency in transactions to establish its acceptance and widespread adoption. The “HODL forever” mentality may hinder bitcoin’s evolution into a true medium of exchange. To ensure success, it is important to align with the Austrian school’s definition and recognize that active usage is essential in transforming bitcoin into an effective form of money.
By
By
By
By
By