XV – Carl Menger, Part 2 – History of Economic Thought; Part 1

Carl Menger also developed a theory of the origin of money.  There are no records indicating a political leader created it, and that would have been a pretty huge achievement to leave off the books.  It also would have been pretty hard to convince other people to just start randomly using money.

Menger’s theory was that, when a man wanted to trade a specific illiquid good for a different good, he could have traded the illiquid good first for a good that was more liquid.  He would have used the more liquid good as a stepping stone to trade for the good that he originally wanted, since, because it is more liquid, the chances went up of the man finding a trade for the good he really wanted.  Because of the man’s willingness to use the more liquid good as a stepping stone, the more liquid good became even more marketable.  Eventually, a good or goods became so marketable that they could be used for almost every transaction.  This became money.


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