Cryptocurrency as Money — Store of Value or Medium of Exchange? – Op-Ed Bitcoin News

** The article below was written by Kristoffer Musten Hansen and Karras Lambert and published on September 28, 2022. Cryptocurrencies as Money – Store of Value or Medium of Exchange? Originally published on The opinions expressed in this article are the author’s own. is not responsible or liable for any opinion, content, accuracy or quality in the op-ed. **

Cryptocurrency enthusiasts often appreciate the Austrian school of economics. This is understandable since Austrian economists have always argued about the value of privately produced money outside government control. Unfortunately, a misconception about the development and functions of money has emerged and has become increasingly dominant among at least some bitcoin advocates – a story that contradicts the basics. of Austrian monetary theory.

According to this view, perhaps can be derived from Nick Szabo’s The essay emphasizes collectability, the primary and primary function of money as a “store of value”, or this function on par with the function of material exchange. In this view, a good must first “transmit value” over time. It can then be used as a medium of exchange before finally being established as a unit of account.

This account has the opposite appearance and function of money: the only real and basic function of money is as a medium of exchange. Its status as a “store of value” (more on this below) is random, while the function of the unit of account is unnecessary, since there have been many money commodities throughout history. History is never used as a unit of account.

The Austrian tradition, from Carl Menger to Ludwig von Mises and Murray Rothbard, has always insisted that money is essentially a medium of exchange, with any other so-called other function being random and in the case of ” store of value”, metaphor. . In what follows, we explain this position.

On value

To understand the nature of money, we must first review the theory of value. Austrians have always emphasized the subjective nature of values. It is not something intrinsic to the commodity but is always related to the individual acting and his potential choices. At the moment of choice, he gives value to an object by preferring it to other objects. An object can be valued for its usefulness in directly achieving the ends of the individual acting (as a consumer good), for assisting in the production of a consumer good (as a consumer good). producer), or as a medium of exchange.

The bottom line is that value is a subjective concept and only makes sense in a situation of choice. Subjective value cannot be transferred over time, and so there is no literal “store of value”. Of course, an object can be stored for later use, but its value cannot be stored in such a way that its physical integrity can be preserved. However, at any given time, subjective value plays a central role in shaping the market exchange rate, i.e. price.

An exchange takes place only when both sides of the exchange prefer what the other has to what they give up in return. In a monetary economy, most exchanges are between money and non-monetary goods and services, but the same principle of reverse precedence holds true: the seller of the good prefers the money he receives to the goods. commodity and the buyer prefers it to the amount he has to surrender for it.

In a society where there is consistently iterative exchange, an integrated system of market pricing is established. The market price of an object is then equal to its market value. Calling something a “store of value” is really a way of saying that its market value is expected to stay the same or increase over time. The difference between money and other commodities is that the market value of money cannot be expressed as a single price but must be expressed as a range of prices. This price range is the purchasing power of money. When we talk about money as a store of value, we really mean that we expect it to have steady or growing purchasing power over all other goods.

On money

A key argument among “store of value” proponents is that money is a commodity best served as a store of value and thus has gradually emerged as the most popular medium of exchange. This idea has little to do with Menger’s account of the origin of money. It is not the best store of value appearing as money but as a marketable commodity.

The shift from direct to indirect exchange developed as market actors discovered that goods differed in their levels of demand and began to exchange their goods for wider demand. – more marketable – commodities instead of engaging in direct exchange. A few commodities gradually became the dominant medium of exchange based on the characteristics that made them useful for this purpose: high value per unit weight/volume, divisibility, durability, capacity transportation capacity. Until the twentieth century, precious metals were used as money precisely because their qualities made them the most suitable commodity for this purpose.

Note that so far no mention has been made of money as a store of value in this discussion of Menger’s money theory. In reality, he argued clearly that it is wrong to assign a value store function to money over money:

But the notion that money has the function of transferring ‘value’ from the present to the future must be regarded as false. Although coins, because of their durability and low maintenance costs, are certainly well suited for this purpose, it is clear that other items are still better suited for it. Indeed, experience teaches that wherever goods less easily preserved than precious metals have acquired monetary character, they often serve the purpose of circulation, but not the preservation of ‘value’. .

That the currency metal is also a good store of value is a mere coincidence; it is not essential to their monetary function. The qualities that make a commodity a store of value likely also make it a good medium of exchange. Thus, durability is important for any monetary commodity, and it is clearly essential for anything to become a “store of value” for any length of time.

In reality, as Mises explained, the function of store of value, so far as it can be said to exist for a given monetary commodity, is attached to the commodity’s primary function as a medium of exchange: “Money is what plays the role of a commodity. role is a widely accepted and used means of exchange. This is its only function. All the other functions people ascribe to money are just specific aspects of its main and only function, which is a medium of exchange. “

We don’t need to discuss the need for money any further – it is clear that as Mises continues in the chapter just cited, that everyone keeps money in reserve, and that all the money is always kept somewhere by someone. . However, this also does not indicate that money necessarily acts as a “store of value”. As William H. Hutt explained in a classic article (after built by Hans-Hermann Hoppe), the use of money in one’s cash balance as a reserve of purchasing power for unforeseen circumstances.

We always reserve cash for emergencies or take advantage of unforeseen profitable opportunities. But even bad money – that is, money that reduces purchasing power and therefore cannot meaningfully be said to be a “store of value” – serves this purpose. Holding money simply means holding it until an uncertain future date when you expect you’ll be able to exchange it for something you appreciate more.


Bitcoin enthusiasts who fit the Austrian school of Menger, Mises, and Rothbard are wrong when they assume that the fundamental importance of money’s “store of value” function comes at the expense of its “means of value” function. exchange”, the second function being the only essential aspect of money. Likewise, downplaying the importance of active use of cryptocurrencies, which also entails increased business demand, favors the “HODL forever” mentality, which goes against the odds. Mises .’s recognition that “business use alone can turn a good into a common medium of exchange.”

Cards in this story

austrian, Austrian Economy, Austrian School, Carl Menger, debate, Economics, Hans-Hermann Hoppe, Karras Lambert, Kristoffer Musten Hansen, Ludwig von Mises, Noise, money, Precious metal, store value, subjective value, money theory, theory of value, Exchange unit

What are your thoughts on cryptocurrencies as money and what is the general store of value versus medium of exchange debate? Let us know in the comments section below.

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