Hans Sennholz’s conference-paper chapter, originally published in 1985 and republished in 1992, reconstructs Carl Menger’s monetary thought through his theoretical essays, reform proposals, and testimony concerning Austria-Hungary’s currency. Its central claim is that Menger extended subjective value theory into monetary analysis while leaving a comprehensive theory of money and credit to his successors. Sennholz presents the later writings as contributions both to economic explanation and to practical reform: their concern is to secure exchange, protect contractual justice, and limit governmental manipulation of purchasing power.
The opening places Menger alongside Adam Smith as a founder whose unfinished system enabled others to build. After identifying seven monetary writings published between 1889 and 1893, Sennholz proceeds from money’s origin and demand to purchasing power, the gold standard, commission testimony, and errors in implementing reform. This sequence connects methodological individualism with institutional recommendations rather than treating monetary policy as an isolated technical subject.
Money’s emergence supplies the foundational argument. Against explanations invoking agreement, legislation, or state invention, Menger traces indirect exchange to individuals seeking goods more marketable than those they initially possess. Durability, divisibility, and transportability help particular commodities become widely accepted without anyone designing the resulting institution.
The economic good that emerges as the most marketable good of all is called “money.”
The definition makes common acceptability an outcome of exchange. Sennholz also emphasizes Menger’s derivation of money’s secondary functions from its primary role as medium of exchange. Credit exchanges present for future goods; storing or transmitting value depends on qualities that enhance marketability. These functions do not require independent explanations of money’s nature.
The same individual-centered method governs monetary demand. Aggregate trade, payment volumes, and velocity cannot substitute for explaining why people maintain cash balances. Sennholz quotes Menger’s formulation:
The monetary demand of a national economy is the sum of the moneys needed by individuals and groups of individuals participating in the division of labor.
Distribution matters alongside the total. Clearinghouses and other financial institutions economize cash, but their influence operates through individual requirements for money. Sennholz thus reads Menger’s approach as a rejection of aggregates treated as autonomous causes, not simply as a different formula for calculating national demand.
Purchasing power exposes the unfinished character of the theory. In the Principles, Menger tied metallic money’s value to its material’s industrial usefulness. Yet Austria’s silver guilder, circulating above its bullion value after the mint closed to private silver coinage in 1879, demanded another explanation. Restricted supply generated a scarcity premium, making purchasing power depend on circulating media relative to public demand. Sennholz regards this account as a bridge toward a subjective theory of monetary value, while acknowledging its limits:
He offered no explanation of the process of value determination at any given time and place.
Wieser and especially Mises subsequently developed the analysis. Menger’s alarm at the guilder’s separation from its metallic base also had an institutional basis: government financing through the bank and discretionary control over coinage exposed wealth and obligations to political intervention. Resuming silver coinage could abruptly reduce the currency’s value.
The gold-standard sections show that opposition to discretion did not entail an inflexible demand for exclusively metallic circulation. Menger favored gold for its convenience, durability, international acceptance, and capacity to integrate Austria into its trading partners’ monetary system. Nevertheless, Austria’s acquisition of gold could raise its worldwide purchasing power, lower prices and wages, and redistribute wealth toward creditors. A desirable standard therefore required a carefully managed transition, not merely a legislative declaration.
In testimony before the Currency Commission, Menger recommended limited subsidiary silver, redeemable notes, and institutions that economized gold. Sennholz reproduces his practical defense of mixed circulation:
If a gold currency is plated so solidly that it can survive the corrosive acid of a commercial crisis or even the ordeal of a war, then nothing can be said against it.
The metaphor locates soundness in dependable convertibility rather than material purity. Treasury notes could be acceptable if strictly limited and redeemable on demand, without legal-tender status. For conversion, Menger advocated the current exchange rate as the just basis for both money holdings and debts. Reform should neither manufacture gains and losses nor retrospectively compensate for earlier purchasing-power changes.
The final substantive section examines the reform enacted in August 1892 and Menger’s criticism of its execution. Initial gold inflows gave way to a gold premium and guilder discount. Sennholz attributes the reversal to rushed acquisitions, excessive optimism about securities, foreign withdrawals, and central-bank purchases that released new credit while draining domestic gold and foreign exchange. Official eagerness undermined the parity reform was intended to establish.
But a serious and purposeful currency reform is not possible as long as domestic and foreign markets deny us the exchange rates on which we legally have embarked.
The sentence crystallizes the chapter’s distinction between statutory intention and market realization. Sennholz concludes by connecting monetary stability with justice and the division of labor, then interprets Menger’s later silence as possible despair over Austria-Hungary’s future. This closing portrait is more speculative than the preceding analysis. The chapter’s lasting relevance lies in its account of how spontaneous monetary institutions, individual valuations, and contractual obligations constrain reform—and why advocating gold need not mean ignoring the economic costs of adopting it.
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