In the last decade, ardent supporters of digital currencies have engaged in rigorous discussions surrounding the fundamental nature of Bitcoin (BTC). Is it intended to function as peer-to-peer electronic cash, as envisaged in Satoshi Nakamoto’s seminal white paper, or does it primarily serve as a digital store of value, akin to precious metals like gold? Furthermore, a central question looms large in the debate over the primary function of money: should its role as a medium of exchange take precedence over its attributes for preserving value? This elucidative article explores the Austrian school of economics, with a focus on the insights provided by Carl Menger in his work, “On the Origins of Money.”
Menger’s Perspective on the Emergence of Money
Rather than engaging in the dichotomy of whether Bitcoin should be a medium of exchange (MoE) or a store of value (SoV), this editorial aims to probe the critical consideration when something transitions into a unit of currency. In “On the Origins of Money,” Carl Menger, a foundational figure in Austrian economics, elucidates that the genesis of money is a spontaneous social institution born from individuals pursuing their self-interest, rather than a mandate imposed by the state.
Menger’s thesis posits that this evolution commences when certain commodities gain prominence due to their attributes, such as durability, transportability, and divisibility, making them more “saleable” than others. These commodities find greater acceptance in trade because they facilitate exchanges for desired goods. Over time, the most saleable commodities become universally accepted as a medium of exchange, driven by constant demand from parties looking to trade them for other goods.
Menger succinctly states:
“As the extension of trade in space and time advances and as prevision for satisfying future needs over increasingly long intervals becomes more general, each individual will strive, in his own interest, to select goods as media of exchange, the saleableness of which extends widely both in time and space.”
Mises and Rothbard on Money’s Primary Functions
In the context of Bitcoin, Menger’s theory implies that its role as a medium of exchange should take precedence, especially in its nascent stages. Essentially, BTC must gain widespread acceptance in transactions before assuming the mantle of a store of value. Austrian economists Ludwig von Mises and Murray Rothbard concur, highlighting that the medium of exchange function precedes the store of value function in the transition to becoming money.
In September 2022, Kristoffer Mousten Hansen and Karras Lambert, contributing to Mises.org, further expounded on Mises’ perspective. They emphasize Mises’ belief that a commodity must first establish its ability to “retain value” over time before becoming a medium of exchange and, subsequently, a store of value. They conclude that adherents of the Austrian school should prioritize Bitcoin’s “medium of exchange” function over its “store of value” role, aligning with Mises, Menger, and Rothbard.
Hansen and Lambert argue that diminishing the importance of active cryptocurrency usage in favor of a “HODL forever” approach contradicts Mises’ recognition that “business usage alone can transform a commodity into a common medium of exchange.” They also note that the store of value-centric perspective can be traced back to a message by renowned computer scientist Nick Szabo. Despite its prevalence in the crypto community, this perspective departs from the Austrian school’s conception of money’s origins.
Frequently Asked Questions (FAQs) about Bitcoin’s Evolution
What is the main debate discussed in the text?
The main debate in the text revolves around Bitcoin’s role: whether it should primarily serve as a medium of exchange or a store of value.
Who is Carl Menger, and what is his significance in this context?
Carl Menger is a foundational figure in Austrian economics. He is significant because he provided insights into the origins of money, emphasizing that it emerges from individuals pursuing their self-interest rather than being imposed by the state.
What is the Austrian school’s perspective on Bitcoin’s functions?
According to the Austrian school of economics, including economists like Ludwig von Mises and Murray Rothbard, Bitcoin should prioritize its function as a medium of exchange before assuming the role of a store of value.
What key attributes make certain commodities more “saleable” and suitable for becoming money, as explained by Carl Menger?
Commodities with attributes like durability, transportability, and divisibility are considered more “saleable” and are more likely to become money due to their facilitation of exchanges for desired goods.
Hansen and Lambert argue that prioritizing the “medium of exchange” function aligns with the Austrian school’s perspective and the belief that active usage is crucial for a commodity to become a common medium of exchange, a critical aspect of money.
What is the potential drawback of favoring a “HODL forever” perspective for Bitcoin, according to the text?
The text suggests that favoring a “HODL forever” approach for Bitcoin may diminish the importance of its active usage in transactions, which, according to Mises, is necessary to transform it into a common medium of exchange.
What historical perspective is mentioned regarding the store of value-centric mentality in the crypto world?
The text notes that the store of value-centric perspective can be traced back to a missive written by the renowned computer scientist Nick Szabo, which influenced the perception of Bitcoin’s role in the crypto community.
How does the text invite readers to engage with the discussed concepts?
The text encourages readers to share their thoughts and opinions on Carl Menger’s definition of money and the process of its evolution in the comments section below the article.
More about Bitcoin’s Evolution
- Bitcoin’s White Paper by Satoshi Nakamoto
- Carl Menger’s “On the Origins of Money”
- Austrian School of Economics
- Ludwig von Mises
- Murray Rothbard
- Kristoffer Mousten Hansen and Karras Lambert’s Essay on Mises.org
- Nick Szabo’s Profile
- Mises Institute