Review of Austrian Economics, 13: 115–120 (2000)
2000 Kluwer Academic Publishers
Alchian and Menger on Money
CHARLES W. BAIRD firstname.lastname@example.org
The Smith Center, California State University, Hayward, CA 94542, USA
Abstract. Carl Menger and Armen Alchian told stories of the emergence of money as a spontaneous order
involving two types of costs—costs of recognizing attributes of goods and costs of ﬁnding willing exchange
partners. Menger assumed that the ﬁrst are zero and the second are positive. Alchian assumed the opposite. In the
real world both types of costs are positive, so a truly satisfactory story of the emergence of money as a spontaneous
order has yet to be written. This is another example of the complementarity of work done by some Austrian and
some neoclassical economists.
JEL classiﬁcation: B10, B20, E49
Two years ago Karen Vaughn called me to ask whether I would be willing to stand for
election as president-elect of SDAE. I was astonished by the invitation for, as most of you
know, I am eclectic in my approach to economics. I told Karen I would get back to her
with my answer, and then I called Israel Kirzner for advice. When I told him that I consider
myself to be more a consumer than a producer in the ﬁeld, he reminded me that Austrians
believe in consumer sovereignty. With that I called Karen to accept the invitation.
Perhaps the best known of my Austrian papers is “James Buchanan and the Austrians:
The Common Ground,” (1989) in which I tried to illustrate that Austrians can learn much of
value from some non-Austrians. This evening I want to make that same point with respect
to Armen Alchian.
Most Austrians are familiar with Alchian’s “Uncertainty, Evolution and Economic The-
ory,” (1950). It is perhaps his most Austrianesque piece. But I suspect few of you are familiar
with his “Why Money?” (1977). In it Alchian gives his views of the necessary conditions for
money to emerge out of the choices of individuals in pursuit of their own interests through
voluntary exchange. I did not know of this paper until last spring when I beganto think about
a topic for this address. I found it in the 1977 Liberty Fund collection of Alchian’s papers
(Economic Forces at Work). At ﬁrst I thought that since this paper was obviously relevant
to Menger’s explanation of the emergence of money as a spontaneous order, some Austrian
must have written about it. I contacted Pete Boettke, Larry White, and Steve Horwitz to
see whether that was true. I discovered that almost nothing has been written on the topic.
O’Driscoll (1986), White (1999), and Horwitz (1992) mention Alchian’s paper in footnotes,
but none of them do much with it.
In passing, it is interesting to note that in the ﬁrst edition of University Economics
(1964:59), Alchian refers to money as “a wonderful invention” rather than an evolutionary
This is the textofmy presidential address to the Society for the Development of Austrian Economics on November
22, 1999 in New Orleans, LA.