Menger’s explanation of the origin of money serves as an example of an important method for analyzing the emergence and function of social institutions.

Steven Horwitz is Economics Editor at Lib​er​tar​i​an​ism​.org and Distinguished Professor of Free Enterprise at Ball State University. Horwitz has written extensively on Austrian economics, Hayekian political economy, monetary theory and history, and macroeconomics.

Summary:

Carl Menger explained how money emerged as an unintended side effect of the actions of people in a barter economy. Rather than barter for what they want directly, which limits their number of potential trading partners, people will try to first exchange for goods wanted by many people. As people observe and copy one another, a single good or handful of goods will emerge as the most marketable and become a money. Menger’s explanation of the origin of money serves as an example of an important method for analyzing the emergence and function of social institutions.