Key ideas: Published in 1892. “And so it has come to pass, that as man became increasingly conversant with these economic advantages, mainly by an insight become traditional, and by the habit of economic action, those commodities, which relatively to both space and time are most saleable, have in every market become the wares, which it is not only in the interest of every one to accept in exchange for his own less saleable goods, but which also are those he actually does readily accept." (C. Menger)
The theory of money necessarily presupposes a theory of the saleableness of goods. If we grasp this, we shall be able to understand how the almost unlimited saleableness of money is only a special case,—presenting only a difference of degree—of a generic phenomenon of economic life—namely, the difference in the saleableness of commodities in general.
It is an error in economics, as prevalent as it is patent, that all commodities, at a definite point of time and in a given market, may be assumed to stand to each other in a definite relation of exchange, in other words, may be mutually exchanged in definite quantities at will.
It is not true that in any given market 10 cwt. of one article = 2 cwt. of another = 3 lbs. of a third article, and so on. The most cursory observation of market phenomena teaches us that it does not lie within our power, when we have bought an article for a certain price, to sell it again forth with at the same price….
The price at which any one can at pleasure buy a commodity at a given market and a given point of time, and the price at which he can dispose of the same at pleasure, are two essentially different magnitudes…
The truth is, that even in the best organized markets, while we may be able to purchase when and what we like at a definite price, viz.: the purchasing price, we can only dispose of it again when and as we like at a loss, viz.: at the selling price.*
It has long been the subject of universal remark in centres of exchange, that for certain commodi ties there existed a greater, more constant, and more effective demand than for other commodities less desirable in certain respects, the former being such as correspond to a want on the part of those able and willing to traffic, which is at once universal and, by reason of the relative scarcity of the goods in question, always imperfectly satisfied.
And further, that the person who wishes to acquire certain definite goods in exchange for his own is in a more favourable position, if he brings commodities of this kind to market, than if he visits the markets with goods which cannot display such advantages, or at least not in the same degree….
Under these circumstances, when any one has brought goods not highly saleable to market, the idea uppermost in his mind is to exchange them, not only for such as he happens to be in need of, but, if this cannot be effected directly, for other goods also, which, while he did not want them himself, were nevertheless more saleable than his own. By so doing he certainly does not attain at once the final object of his trafficking, to wit, the acquisition of goods needful to himself. Yet he draws nearer to that object. By the devious way of a mediate exchange, he gains the prospect of accomplishing his purpose more surely and economically than if he had confined himself to direct exchange….
And so it has come to pass, that as man became increasingly conversant with these economic advantages, mainly by an insight become traditional, and by the habit of economic action, those commodities, which relatively to both space and time are most saleable, have in every market become the wares, which it is not only in the interest of every one to accept in exchange for his own less saleable goods, but which also are those he actually does readily accept. And their superior saleableness depends only upon the relatively inferior saleableness of every other kind of commodity, by which alone they have been able to become generally acceptable media of exchange….
Hence it is also clear that nothing may have been so favour able to the genesis of a medium of exchange as the acceptance, on the part of the most discerning and capable economic subjects, for their own economic gain, and over a considerable period of time, of eminently saleable goods in preference to all others…
Goods which had thus become generally acceptable media of exchange were called by the Germans Geld, from gelten, i.e., to pay, to perform, while other nations derived their designation for money mainly from the substance used, the shape of the coin, or even from certain kinds of coin.
When the relatively most saleable commodities have become “money,” the great event has in the first place the effect of substantially increasing their originally high saleableness. Every economic subject bringing less saleable wares to market, to acquire goods of another sort, has thenceforth a stronger interest in converting what he has in the first instance into the wares which have become money.
For such persons, by the exchange of their less saleable wares for those which as money are most sale able, attain not merely, as heretofore, a higher probability, but the certainty, of being able to acquire forthwith equivalent quantities of every kind of commodity to be had in the market. And their control over these depends simply upon their pleasure and their choice. Pecuniam habens, habet omnem rem quem vult habere.
On the other hand, he who brings other wares than money to market, finds himself at a disadvantage more or less. To gain the same command over what the market affords, he must first convert his exchangeable goods into money. The nature of his economic disability is shown by the fact of his being compelled to overcome a difficulty before he can attain his purpose, which difficulty does not exist for, i.e., has already been overcome by, the man who owns a stock of money….
He who is desirous, in an era of monetary economy, to exchange goods of any kind whatever, which are not money, for other goods supplied in the market, cannot be certain of attaining this result at once, or within any predetermined interval of time, at economic prices. And the less saleable are the goods brought by an economic subject to market, the more unfavourably, for his own purposes, will his economic position compare with the position of those who bring money to market. …
What therefore constitutes the peculiarity of a commodity which has become money is, that the possession of it procures for us at any time, i.e., at any moment we think fit, assured control over every commodity to be had on the market, and this usually at prices adjusted to the economic situation of the moment; the control, on the other hand, conferred by other kinds of commodities over market goods is, in respect of time, and in part of price as well, uncertain, relatively if not absolutely.
The commodities, which under given local and time relations are most saleable, have become money among the same nations at dif ferent times, and among different nations at the same time, and they are diverse in kind. The reason why the precious metals have become the generally current medium of exchange among here and there a nation prior to its appearance in history, and in the sequel among all peoples of advanced economic civilization, is because their saleableness 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 functions of money. …
In spite of their natural scarcity, they are well distributed geographically, and, in proportion to most other metals, are easy to extract and elaborate. Further, the ratio of the available quantity of the precious metals to the total requirement is so small, that the number of those whose need of them is unsupplied, or at least insufficiently supplied, together with the extent of this unsupplied need, is always relatively large—larger more or less than in the case of other more important, though more abundantly available, commodities. …
It cannot be doubted that, long before they had become the generally acknowledged media of exchange, they were, amongst very many peoples, meeting a positive and effective demand at all times and places, and practically in any quantity that found its way to market….
The proportionately strong, persistent, and omnipresent desire on the part of the most effective bargainers has gone farther to exclude prices of the moment, of emergency, of acci dent, in the case of the precious metals, than in the case of any other goods whatever, especially since these, by reason of their costliness, durability, and easy preservation, had become the most popular vehicle for hoarding as well as the goods most highly favoured in commerce.
Money has not been generated by law. In its origin it is a social, and not a state institution. Sanction by the authority of the state is a notion alien to it.
On the other hand, however, by state recognition and state regulation, this social institution of money has been perfected and adjusted to the manifold and varying needs of an evolving commerce, just as customary rights have been perfected and adjusted by statute law.