By Eugen-Maria Schulak In his debut work, the Principles of Economics, Menger considered whether money developed "without any agreement, without legislative compulsion, and even without regard to the public interest" (Menger 1950/2007, p. 260; emphasis in the original). Accordingly, money had a "natural" origin and is not an "invention of the state." "Even the sanction of political authority is not necessary for its existence" (ibid., pp. 261–262). Menger did not move beyond this original explanation. Later economists ascertained that determining the value of money with the principle of marginal utility led to a circular argument, as the exchange value of money determines the demand for money; but the demand itself is in turn dependent on the value of money (cf. Wicksell 1898/2006, pp. 38, 50; and Helfferich 1903, pp. 487–488). A young Viennese economist is reminded of the "everlasting circle" in a Viennese song, in which gaiety comes from merriness and merriness is in turn derived from gaiety (cf. Weiss 1910, p. 515).
During his inaugural lecture in 1903 at the University of Vienna, Friedrich von Wieser tried to explain the phenomenon of rising prices using the theory of marginal utility for the first time. Wieser emphasized that growing incomes lead to decreasing marginal utility, to lower exchange values, and finally to increased prices. Because increases in income result from the steady expansion of monetary economy at the expense of the household economy, a rise in prices would thus be nothing but "a necessary, developmental syndrome of the spreading monetary economy" (cf. Wieser 1904/1929, p. 64). Wieser's income theory of money found few adherents and changed little in the way of the older Austrian School's abstinence from monetary theory. But things changed abruptly with the… (Read more)
Source: Mises.org
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