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Origins of money

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Money is not a government invention or a designed system; it emerged spontaneously from the trading practices of early humans, and the same emergence process is observable across all known monetary histories. The theory synthesizes three thinkers: Carl Menger (1871) established the theoretical framework in which money emerges as traders converge on the most salable goods; Nick Szabo (2002, Shelling Out) extended it to human prehistory, showing that "collectibles" — shell beads, ornaments, ceremonial objects — served as proto-money for tens of thousands of years before commodity money; Vijay Boyapati (2018) developed the modern phase framework — collectible → store of value → medium of exchange → unit of account — and applied it to Bitcoin. The combined picture: money emerges from a universal human pattern that long predates states, operates through the salability mechanism Menger described, and is something Bitcoin instantiates with unprecedented properties. Bitcoin is not an aberration but the continuation of a 75,000-year-old human pattern.

Why this note matters

The Austrian framework rests on a specific claim about money’s nature: money is a market phenomenon, not a state creation. This claim is contested by chartalist and state-theory frameworks that hold money requires government decree, and the origins-of-money literature is where that disagreement gets adjudicated. The evidence overwhelmingly supports the Mengerian market-emergence view.

The synthesis of Menger’s theoretical framework, Szabo’s anthropological extension, and Boyapati’s modern phase application produces a coherent picture that none provides alone, and it engages the chartalist alternative — Graeber, MMT, state theory — honestly rather than dismissively. The bridge to Bitcoin follows directly: if money has always emerged from market selection of the most salable goods, Bitcoin’s emergence through the same process is structurally unsurprising even where its specific properties are unprecedented. This is a foundation-laying note that many others build on.

The puzzle of money’s origin

Before working through the answers, the puzzle is worth stating clearly.

The barter problem

Economics textbooks often start with the double coincidence of wants problem. In barter, exchange requires that both parties want what the other has at the right moment. The farmer with wheat who wants shoes must find a shoemaker who specifically wants wheat — at the right time, in the right quantity, of the right quality. Most desired trades never happen because this double coincidence isn’t satisfied.

Money is presented as the solution: a universally accepted medium that eliminates the double coincidence requirement. Anyone can sell their goods for money and use money to buy what they actually want.

The chicken-and-egg problem

But this raises a deeper puzzle: how does money come into existence?

If money’s value depends on its being universally accepted, then no individual trader has reason to accept something as money unless they already expect others to accept it. The first person to accept some good as money would be foolish — they’re accepting it on the assumption others will accept it, but those others have the same problem. Why would anyone be the first to accept something that’s worthless except as money?

This is the bootstrap problem of money. It looks like money requires its own pre-existence — which is logically impossible unless something else gets the system started.

The chartalist non-answer

One historically influential answer comes from the chartalist or state theory of money (Georg Friedrich Knapp’s State Theory of Money, 1905; modern MMT). The argument: money exists because the state decrees that taxes must be paid in a specific medium. This creates artificial demand for the medium, giving it value that no individual would otherwise grant it.

The chartalist response solves the bootstrap problem by introducing an external force (state coercion) that creates the initial demand. But it has serious problems:

  • Historical sequencing. Money predates states. Archeological and anthropological evidence shows trading networks and monetary objects existing before recognizable governmental structures.

  • Cross-cultural emergence. Money has emerged repeatedly across different cultures without state involvement. Wampum among Native Americans, cowry shells across Africa and Asia, cattle in pastoral societies, glass beads in West Africa — none required state decree.

  • Modern counterexamples. Bitcoin emerged in the 21st century without any state involvement. Cigarettes became money in WWII POW camps without state decree. Local barter networks have repeatedly developed their own monies during currency crises.

  • The state itself uses pre-existing money. When governments first issue currencies, they typically issue them in units that already had value. Roman emperors didn’t invent the denarius from nothing — they minted standardized versions of pre-existing silver coinage with existing market value.

The chartalist account explains some features of modern fiat money but doesn’t explain monetary origins. A better answer is needed.

See: The Cantillon effect (for how states use money once it exists), Criticisms of Bitcoin (for MMT engagement).

The Mengerian answer

Carl Menger’s Principles of Economics (1871) and his essay On the Origins of Money (1892) provide a fundamentally different answer. Money emerges spontaneously from market processes through the property of salability.

The argument:

  1. Even in pure barter, some goods are more easily traded than others. Cattle are tradable because many people want cattle. A custom-made tool is harder to trade because few people specifically need that tool.

  2. Self-interested traders gradually realize that accepting highly-salable goods in trade is rational even if they don’t want those goods themselves — because they can re-trade them later.

  3. As more traders adopt this strategy, the most salable goods become commonly accepted as media of exchange.

  4. Through market selection, the goods with the highest salability across scales, space, and time win out as dominant monies.

  5. Once a good is universally accepted, it performs all the functions of money — even though no one designed it as money.

This dissolves the bootstrap problem. Money doesn’t require pre-existing demand for itself as money. It emerges from pre-existing demand for goods that have salable properties for other reasons (consumption, ornamentation, status signaling). The transition from “salable good” to “money” is gradual and emergent, not discrete and designed.

See: Carl Menger for full treatment of his framework.

Szabo’s anthropological extension

Nick Szabo’s 2002 essay Shelling Out: The Origins of Money is the most important modern extension of Menger’s framework. Szabo combined anthropology, evolutionary psychology, and economics to produce a comprehensive theory of how money actually emerged among early humans.

The empirical puzzle

Szabo started with an observation that confused conventional anthropology: early humans collected and traded objects that had no obvious survival value. Shell beads, ornamental stones, ceremonial objects, primitive jewelry — these appear in archaeological sites going back at least 75,000 years (some recent finds push this to 100,000+ years). Why would early humans, struggling for survival, expend significant time and energy on collecting and crafting decorative objects?

Conventional answers (ritual significance, status signaling, religious meaning) explained some uses but not the systematic patterns:

  • The objects were traded across long distances
  • They had recognizable craftsmanship suggesting investment of skilled labor
  • They were stored as wealth and transferred at life events (marriage, death, alliance)
  • Their value persisted across time and across distinct cultural groups

These patterns suggest something more than ritual. Szabo argued these objects were proto-money — collectibles serving the same functions monetary goods would later serve, but adapted to the conditions of small-scale hunter-gatherer societies.

The collectibles framework

Szabo’s central insight: collectibles share characteristics with non-fiat currencies. They were not “merely symbolic or decorative objects” but functional tools for solving cooperation problems.

The relevant characteristics:

  • Cost of creation. Shells had to be gathered, drilled, polished, and strung. Stones had to be quarried, shaped, and decorated. The objects represented stored labor and thus had unforgeable costliness.

  • Scarcity. Materials were limited (specific shell species, specific stones from specific regions). The supply could not be cheaply expanded.

  • Recognizability. The objects had distinctive characteristics that allowed verification of authenticity — patterns, materials, craftsmanship style.

  • Durability. Shells and stones could persist across generations. Unlike food or clothing, they didn’t decay rapidly.

  • Transportability. Small enough to carry, valuable enough per unit to justify carrying.

  • Divisibility. Strings of beads could be broken into smaller units; whole objects could function for larger transactions.

These are exactly the properties Menger and later economists identified as making goods suitable to serve as money. Early humans were not consciously designing money — they were following the salability dynamics Menger described, in conditions adapted to their economic environment.

The cooperation problem

Szabo’s deeper argument is that collectibles enabled forms of cooperation that other animals cannot achieve. Specifically, they solved several distinct problems:

Reciprocal altruism with memory limits. Humans can reciprocate favors, but human memory is limited. If you helped me last year and I help you this year, we both need to remember the original exchange. With small groups and short timeframes, memory works. With larger groups and longer timeframes, it breaks down.

Collectibles solved this by externalizing memory. Instead of remembering “Alice helped me harvest last year,” you exchanged collectibles at the time of help. The collectible is the memory — Alice now has the bead, and when she needs help later, the bead is the claim on reciprocity.

Kin altruism and inheritance. Humans invest heavily in offspring, but offspring need resources after parents die. Collectibles enabled wealth transfer across generations. A parent could accumulate beads during life and pass them to children — providing intergenerational continuity that wouldn’t otherwise be possible.

Marriage transfers. Most human cultures involve some form of bride price, dowry, or marriage exchange. Collectibles enabled these transfers — concrete objects could be exchanged at marriage to formalize the alliance between families.

Tribute and dispute resolution. When conflicts arose between groups, peaceful resolution often required wealth transfer (compensation for damage, tribute to dominant groups, payment of bride prices for resolved disputes). Collectibles enabled these transfers when direct goods exchange wouldn’t work.

In all these cases, collectibles served what later economists would call money’s functions — but adapted to the social and economic conditions of small-scale societies.

The Neanderthal puzzle

One striking observation from Szabo: anatomically modern humans (H. sapiens sapiens) collected and traded shells and beads. Neanderthals (H. sapiens neanderthalensis), despite being intelligent tool-users with broadly similar cognitive capacities, generally did not.

This is suggestive: the cultural and economic technology of collectibles may have given modern humans a significant cooperative advantage. When the two species came into contact, modern humans could engage in larger-scale cooperation networks supported by their proto-monetary technology. Neanderthals could not. This may be part of the explanation for why modern humans replaced Neanderthals across Eurasia.

The implication: money may be one of humanity’s most important technologies. Not just an economic convenience, but a fundamental enabler of the cooperative behavior that distinguishes us from other species.

See: Nick Szabo, Shelling Out - Nick Szabo.

The Sungir example

One archaeological finding Szabo highlights: the Sungir graves, discovered in Russia in 1955 and dated to approximately 28,000-34,000 years ago. Two children were buried with extraordinary grave goods, including approximately 13,000 shell beads on their clothing.

Estimating production time: each bead required roughly an hour of skilled labor. 13,000 beads represent approximately 13,000 hours of work — about 6 years of full-time labor.

This is not casual ornamentation. This represents enormous stored value — proto-money on a scale that suggests these objects were not just symbolic but functional wealth. The fact that this wealth was buried with children indicates beliefs about wealth transfer to the afterlife, but the magnitude indicates that the beads themselves had real economic significance.

The Sungir find is one piece of evidence among many that proto-money was deeply embedded in human prehistory, performing economic functions far earlier than conventional histories of money typically acknowledge.

The evolutionary stages of money

Combining Menger, Szabo, and later thinkers, we can sketch the evolutionary stages of money — the progression from no money to fully monetized economies.

Stage 1: Pure barter (largely hypothetical)

Pure barter — direct exchange with no medium — is a theoretical baseline rather than a historical reality. Most human societies seem to have had proto-monetary objects from very early in their development. But pure barter is conceptually useful as the starting point for understanding why money emerged.

In pure barter, the double coincidence of wants severely limits trade. Specialization is constrained because traders can’t reliably exchange their output for what they need. Economic complexity stays low.

Stage 2: Proto-money / collectibles (75,000+ years ago)

The first true monetary technology: collectibles that store value, enable wealth transfer, and serve memory and cooperation functions. Examples:

  • Shell beads (most widely documented, across many cultures)
  • Ornamental stones and polished pebbles
  • Carved bones and ivory
  • Polished metals (later)
  • Cosmetic ochre and pigments

These objects had low velocity (transferred few times per object lifetime) but enabled forms of economic activity that pure barter could not support. They served as wealth, as alliance markers, as inheritance, as social technology.

Stage 3: Commodity money (varies by region)

Eventually, more standardized commodity monies emerged. These were goods that had non-monetary uses (food, decoration, industrial application) but became widely accepted as media of exchange:

  • Cattle in pastoral societies (Indo-European root peku gives us both “cattle” and “pecuniary”)
  • Salt in Roman and African contexts (Roman soldiers were paid in salt — salarium → salary)
  • Grain in agricultural civilizations
  • Cocoa beans in Mesoamerica
  • Cowry shells across vast trading networks of Africa, Asia, and the Pacific
  • Glass beads in West Africa (until European traders flooded the market with cheap beads, causing the famous monetary collapse)

These commodity monies had higher velocity than collectibles and supported more developed economies, but they were limited by their physical properties (perishability, divisibility, portability).

Stage 4: Precious metals (~5,000 years ago and intensifying)

Precious metals — particularly silver and gold — emerged as superior commodity monies because of their physical properties:

  • High durability (don’t decay)
  • High homogeneity (one ounce of pure gold is essentially identical to another)
  • High divisibility (can be melted and reformed in any quantity)
  • High portability (valuable per unit weight)
  • Recognizable scarcity (production rates limited by geological reality)

The transition from various commodity monies to precious metals took millennia and varied across regions. By the time of major civilizations (Mesopotamia, Egypt, China, Rome), precious metals had largely won out as primary monies.

The key feature: metals’ supply was constrained by geological reality, not by political decision. Even rulers who debased coinage (mixing base metals with precious) could only do so within physical limits.

Stage 5: Coined precious metals (~600 BCE onward)

The Kingdom of Lydia is generally credited with the first standardized coinage around 600 BCE. Coins represented an important advance: they were verified, weighed, and stamped by a recognized authority, reducing transaction costs in trade.

But coins were not the invention of money — they were a standardization of pre-existing monetary metals. The Lydian coinage emerged in a context where unminted silver and gold were already widely used as money.

Coinage opened the door to monetary debasement: rulers could mix base metals into coinage while maintaining the stamp. This is the origin of the long history of inflation that runs through the Roman denarius, medieval European debasements, and into modern fiat. See: History of the gold standard, Bretton Woods and the Nixon shock.

Stage 6: Paper money and bank credit (~1000 CE onward)

Paper money first emerged in Tang Dynasty China and developed extensively in later Chinese dynasties. European banking developed paper instruments in the late medieval and Renaissance periods.

In its early forms, paper money was a claim on commodity money — a warehouse receipt for gold or silver held in storage. The paper itself had no value; it was a convenient way to transfer the underlying commodity money without physical movement.

This evolved into fractional reserve banking: banks issued more claims than they held in reserves, trusting that not all claims would be redeemed simultaneously. This created the first credit-money systems and the boom-bust cycles that Mises and Hayek would later analyze through Austrian Business Cycle Theory.

See: Austrian Business Cycle Theory.

Stage 7: Fiat money (1971 onward, fully)

The decisive break came in 1971 when President Nixon ended the convertibility of dollars to gold. For the first time in human history, the dominant global reserve currency had no commodity backing.

This is what we typically mean by “fiat money” — money whose value depends entirely on:

  • Trust in the issuing institution
  • Legal tender laws compelling its use
  • Tax requirements creating artificial demand
  • Network effects of being the common medium

Fiat money is anomalous in the long history of monetary emergence. For 75,000+ years, money emerged from market processes selecting goods with intrinsic salability properties. Fiat money breaks this pattern — it exists by decree, not by market selection.

See: Hard money vs fiat money, The Fiat Standard - Saifedean Ammous.

Stage 8: Digital sound money (2009 onward)

The most recent stage: Bitcoin and (potentially) its successors. After 38 years of fiat experimentation, a new monetary technology emerged that combines:

  • Market-driven emergence (like historical monies)
  • Mathematical scarcity (like precious metals, but absolute)
  • Digital portability (like fiat, but without intermediaries)
  • Verifiability (better than any previous money)

In the long view of monetary history, Bitcoin is not strange — it’s the continuation of a 75,000-year pattern of market selection for the most salable goods, adapted to digital conditions.

See: Bitcoin as emergent money.

Boyapati’s phase framework

Vijay Boyapati’s The Bullish Case for Bitcoin (2018) extended the origins-of-money framework into a specifically Bitcoin-focused analysis. His central contribution: a four-phase framework for how monetary goods evolve in their use.

The four phases

Phase 1: Collectible. A new monetary good begins as a collectible — held by a small number of enthusiasts who value it for its properties but don’t yet use it for general exchange. Demand is limited; price is low and volatile.

For Bitcoin: 2009-2011, roughly. Cryptography enthusiasts, early adopters, libertarians, and tech-savvy investigators experimented with Bitcoin without it serving any broader economic function.

Phase 2: Store of value. The good gains broader recognition as a way to preserve wealth across time. Investors and savers begin allocating to it as a hedge against monetary debasement or inflation. Demand grows substantially; price rises despite continued volatility.

For Bitcoin: 2012-present, roughly. The Bitcoin-as-digital-gold thesis became mainstream during this period. Spot ETFs (2024) and corporate treasury adoption (MicroStrategy and others) accelerated this phase. As of 2026, Bitcoin is solidly in Phase 2.

Phase 3: Medium of exchange. The good becomes widely accepted in regular transactions. Lightning Network and similar layer-2 solutions are part of the infrastructure for this phase. Volatility decreases significantly as the good’s monetary base expands.

For Bitcoin: Not yet. Lightning Network has grown but Bitcoin is not yet a widely-used medium of exchange. This phase likely doesn’t fully arrive for years or decades — Saifedean Ammous estimates 2030s-2040s.

Phase 4: Unit of account. The good becomes the standard against which other prices are measured. Goods and services are denominated in it natively, not converted from another unit.

For Bitcoin: Far in the future. Currently, even Bitcoin maximalists denominate prices in dollars and convert to Bitcoin. The transition to Bitcoin-as-unit-of-account would require Bitcoin to become so universally accepted that pricing in it becomes natural — likely a 50-100 year process.

The phases overlap

A critical insight: these phases don’t happen sequentially with clean boundaries. Bitcoin is currently in Phase 2 (store of value) but with the beginning of Phase 3 emerging (Lightning Network adoption, El Salvador legal tender, etc.). Gold was in Phase 4 (unit of account) historically but is now in Phase 2 (store of value) — a regression caused by fiat displacing it.

Each phase has its own characteristic dynamics, but a monetary good can be in multiple phases simultaneously for different communities. The Salvadoran shopkeeper using Bitcoin via Lightning is in Phase 3; the American institution holding a Bitcoin ETF is in Phase 2; the early enthusiast running a node is in Phase 1.

See: Store of value vs medium of exchange vs unit of account, Monetization S-curve, Vijay Boyapati.

Why phases matter for Bitcoin investors

The phase framework has direct implications for investment thinking:

  • Phase 1 → Phase 2 transition represents the largest price appreciation. This is when a good captures monetary premium from competing assets. Bitcoin’s 100,000x price appreciation from 2010 to 2025 reflects this transition.

  • Phase 2 → Phase 3 transition involves more modest appreciation but greater stability. Volatility decreases as the monetary base grows. Bitcoin’s volatility has measurably declined cycle over cycle.

  • Phase 3 → Phase 4 transition is largely consolidation. The good is already widely held; the remaining adoption is at the margins.

For a Bitcoin holder, understanding which phase Bitcoin is in helps calibrate expectations. Bitcoin in Phase 2 will not produce the returns of Bitcoin moving from Phase 1 to Phase 2 — but it’s still in earlier phases than gold, equities, or real estate, which have largely completed their monetization processes.

Counter-arguments and tensions

The Mengerian-Szabo-Boyapati synthesis presented above is contested by several substantive frameworks. The strongest critiques deserve engagement.

The Graeber / anthropological critique

The argument: David Graeber’s Debt: The First 5,000 Years (2011) advanced the most significant modern challenge to the Mengerian account of money’s origins. Graeber, an anthropologist with leftist political commitments, argued that the “barter to commodity money” story economists tell is historically false. His specific claims: anthropological evidence shows no pure barter societies that then transitioned to commodity money; what anthropologists actually find are credit systems — extensive networks of remembered debts and obligations; money emerged from these credit systems, often through state involvement (tax collection, military pay); and the Mengerian story is a myth that economists tell to justify a particular ideological framework. This argument received wide attention and is often cited as a refutation of the Austrian view.

Response: Some of Graeber’s claims are right; others are mistaken.

Graeber is correct that pure barter societies are rare or absent. Most documented societies have some form of credit, gift exchange, or proto-monetary objects. The “imagine a barter economy with no money” textbook example is indeed a theoretical baseline, not a historical reality.

But this doesn’t refute the Mengerian framework. The Mengerian account doesn’t require that pure barter ever existed. It requires that goods of varying salability existed, and that traders gradually converged on the most salable as media of exchange. This is entirely consistent with the prehistoric record. Szabo’s collectibles framework, in particular, shows how proto-money emerges from goods that were salable before being monetary.

Graeber confuses “credit systems” with “non-monetary systems.” Many of the “credit” systems Graeber describes actually involved exchanges of valuable objects (cattle, beads, ornaments) — what Szabo would call proto-money. The fact that these exchanges involved memory, social obligation, and timed reciprocity doesn’t make them non-monetary; it makes them earlier forms of monetary activity.

The state-origin claim is empirically weak. Graeber argues states often originated money through tax collection, but the evidence usually shows states adopting existing monetary objects rather than creating new ones. Roman emperors used silver coinage because silver was already widely valued; they didn’t invent silver’s monetary status.

Graeber’s political framing is selectively applied. His critique of “ideology” in economics is heavy when discussing Mengerian frameworks but absent when discussing chartalist frameworks that conveniently support state-centric political views. Both frameworks have political implications; neither is “neutral.”

The accurate synthesis: Menger’s salability framework, extended by Szabo’s anthropological work, accounts for the evidence Graeber raises while remaining empirically robust. The chartalist view captures some features of modern state monetary systems but doesn’t explain monetary origins.

The chartalist / MMT critique

The argument: Modern Monetary Theory (Wray, Mosler, Kelton) and the older chartalist tradition (Knapp 1905) extend Graeber’s framework into a positive theory: money exists because the state decrees it. The state’s power to tax and to require tax payment in a specific medium creates demand for that medium; this demand sustains the medium’s value. The Mengerian framework — emergence from market processes — is therefore wrong as a general theory of money. The state-creates-money view fits modern fiat regimes better than the Mengerian framework does.

Response: Partly compelling about modern fiat, wrong about monetary origins. The chartalist framework captures real features of how modern states maintain currency demand — tax-payment requirements do create artificial demand for fiat currency. But the framework cannot explain how money emerges in the absence of states (which it has, repeatedly, throughout prehistory and in modern episodes like Bitcoin’s emergence and prison-camp cigarette economies). The honest synthesis: chartalism is a partial theory of modern fiat sustenance; Mengerian theory is a theory of monetary emergence. They are not competing answers to the same question. See Critiques of Keynesian economics for the broader Austrian-vs-MMT engagement.

The “Bitcoin doesn’t fit the Mengerian pattern” critique

The argument: Bitcoin doesn’t have the prior-use-value the Mengerian framework requires. Gold was valuable as ornamentation before becoming money; silver was valuable industrially; cowries were valuable for decoration; cattle were valuable for food and labor. Bitcoin had no use-value before being claimed as money. The Mengerian framework requires monetization to begin from a non-monetary use; Bitcoin appears to violate this. Either the framework is wrong, or Bitcoin isn’t really money in the Mengerian sense.

Response: This is the famous regression-theorem challenge engaged in detail at Bitcoin as emergent money. The short answer: Bitcoin’s initial value derived from cypherpunk demand for censorship-resistant digital cash with specific technical properties — those properties were the non-monetary use that bootstrapped the Mengerian process. The longer answer engages the genuine theoretical tension between Mises’s regression theorem and Bitcoin’s actual emergence. The framework survives but requires careful elaboration.

The “just-so story” critique

The argument: The Mengerian narrative of money’s origin reads as a plausible reconstruction of how money could have emerged, but the historical evidence is too sparse to confirm it as how money actually did emerge. The framework’s empirical confirmation is mostly the absence of decisive disconfirmation. Like many origin theories in social science, it may be more conceptual scaffolding than empirical claim.

Response: Fair as a methodological caution. The Mengerian framework should be presented as a theoretical reconstruction with empirical plausibility rather than as a fully-documented historical claim. The framework is supported by: (1) the cross-cultural emergence of similar monetary patterns under similar conditions, (2) the consistency of Szabo’s anthropological evidence with the theoretical structure, (3) the modern emergence cases (Bitcoin, cigarettes, etc.) following recognizable Mengerian dynamics, and (4) the absence of counterexamples where money emerged via non-Mengerian mechanisms. This is not as strong as direct documentary evidence but is substantial as far as historical theories of long-ago events can be substantial.

The Marxist / political-economy critique

The argument: Marxist and adjacent political-economy frameworks (Anwar Shaikh, various) hold that money’s emergence cannot be separated from class relations and the structure of production. The Mengerian “market emergence” framing obscures the class dynamics that actually shape monetary institutions. Money is a social relation, not just a market technology.

Response: Captures something real that the Mengerian framework doesn’t emphasize. Money does have political-economic dimensions; monetary regimes do shape and reflect class relations. The Austrian response is that recognizing these dimensions doesn’t refute the salability framework — money can be both emergent from market processes AND have political consequences. The frameworks are complementary rather than rival. The Austrian-Bitcoin framework engages the distributional consequences of monetary regimes seriously (see Inflation as wealth transfer, The Cantillon effect); the Marxist critique correctly identifies that the political economy of money matters, even if the specific Marxist theoretical apparatus is contested.

See: Criticisms of Bitcoin, Critiques of Keynesian economics.

Why this matters for Bitcoin

The origins-of-money framework has direct implications for understanding Bitcoin.

Bitcoin as continuation, not aberration

If money has always emerged from market selection of the most salable goods, Bitcoin’s emergence through the same process is structurally unsurprising. Bitcoin enthusiasts didn’t somehow break the historical pattern of monetary emergence — they continued it. Bitcoin is the 21st-century application of a 75,000-year-old human pattern.

This framing matters when engaging with critics who treat Bitcoin as a novel speculative bubble unrelated to “real money.” The historical record shows that all monies started as bubbles — collectibles valued by small communities, gradually winning broader recognition through demonstrated salability. Bitcoin’s trajectory is anomalous only in being digital, not in being market-emergent.

Salability as the dominant property

Across 75,000 years, the goods that won out as monies all shared the property of high salability — particularly salability across time (hardness). Cattle lost to silver because silver was harder. Silver lost ground to gold because gold was harder. Cowries lost to glass beads in some contexts because beads were more standardized — and then beads lost when European traders flooded the market and destroyed their hardness.

Bitcoin’s properties on salability:

  • Salability across scales: Maximal (8 decimal places)
  • Salability across space: Maximal (global, instant, no intermediaries)
  • Salability across time: Maximal (21M hard cap, predictable issuance, mathematically enforced)

In the framework that explains 75,000 years of monetary evolution, Bitcoin is the structurally optimal money. This isn’t bias — it’s what the framework predicts.

The institutional framing fails

Standard institutional economics treats monetary systems as the result of central design — central banks, treasuries, international monetary agreements. From the origins-of-money perspective, this is backwards. Monetary systems emerge from market processes; institutions are downstream developments that operate on emerged monies (sometimes badly).

This is why Bitcoin’s lack of institutional backing isn’t a weakness — it’s a return to the historical normal. For 75,000 years before fiat, money worked without central institutions. The 50-year fiat experiment is the anomaly.

See: Bitcoin as emergent money.

The patience of monetization

Boyapati’s phase framework, grounded in the longer origins-of-money history, sets realistic expectations. Bitcoin is currently somewhere in Phase 2 (store of value). The transition to Phase 3 (medium of exchange) will take years. The transition to Phase 4 (unit of account) will take decades.

This is normal. Gold took centuries to fully monetize. Silver took millennia. Bitcoin’s monetization is fast by historical standards — but it’s still operating on a scale of decades, not months. Investors and observers who expect Bitcoin to become a universal medium of exchange “this cycle” are missing the historical pattern.

See: Monetization S-curve.

Open questions for further development

Questions worth tracking as this discussion develops:

  • How precise can the Mengerian framework be about which goods become money in different contexts? Why cowries in some places, beads in others, cattle in still others?
  • The Sungir grave goods represent enormous stored wealth. How should this affect our understanding of early human economic complexity?
  • Did monetary technology give modern humans their cooperative advantage over Neanderthals, or is the correlation coincidental?
  • How should the chartalist insights about state involvement in modern monetary systems be integrated with the Mengerian framework about origins? Are these compatible or incompatible accounts?
  • Bitcoin combines features of all previous monies (commodity hardness, digital portability, mathematical scarcity). Are there other features that could emerge in future monetary technologies?
  • If Bitcoin substantially completes its monetization, does it lock in for a century or longer, or could a future technology eventually displace it as Bitcoin displaced gold?
  • The phase framework predicts long timelines for full Bitcoin monetization. How should this affect investment strategy and life planning?

Canonical sources for this note

Primary sources

  • Principles of Economics, Carl Menger (1871) — the foundational theoretical framework; final chapter on money
  • “On the Origins of Money,” Carl Menger (1892, Economic Journal) — the essay that established the theory internationally
  • Shelling Out: The Origins of Money, Nick Szabo (2002) — the canonical anthropological extension
  • The Bullish Case for Bitcoin, Vijay Boyapati (2018, 2021) — the modern Bitcoin application

Historical and anthropological context

  • The History of Money, Glyn Davies (1994) — comprehensive history covering thousands of years
  • A History of Money: From Ancient Times to the Present Day, Glyn Davies — slightly different organization, same depth
  • Money: The Unauthorized Biography, Felix Martin (2013) — alternative perspective, sometimes critical of Austrian view
  • Debt: The First 5000 Years, David Graeber (2011) — the major chartalist alternative; worth engaging
  • Archaeological literature on Sungir, Aurignacian sites, and Upper Paleolithic ornaments

Austrian-Bitcoin synthesis

  • The Bitcoin Standard, Saifedean Ammous (2018) — Chapter on monetary properties draws on origins framework
  • Layered Money, Nik Bhatia (2021) — placement of Bitcoin in monetary history
  • Broken Money, Lyn Alden (2023) — historical synthesis with origins framework implicit

Comparative monetary history

  • Money and the Mechanism of Exchange, William Stanley Jevons (1875) — mainstream parallel treatment
  • The Theory of Money and Credit, Ludwig von Mises (1912) — formalizes Menger’s framework
  • What Has Government Done to Our Money?, Murray Rothbard (1963) — accessible synthesis

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