Development and Underdevelopment in the History of Economic Thought

Digitization and the Evolution of Money as a Social Technology of Account

Peneder Michael, Austrian Institute of Economic Research (WIFO)

Throughout the classical and neoclassical period, the primary interest of monetary considerations was in the proper functioning of money as a means of exchange, generally thought to depend on intrinsic qualities of the matter it is made of. According to the prevailing commodity view, 'sound money' either had to consist of precious metals or be strictly backed by them. Carl Menger thus explained the evolution of money as a market-driven spontaneous order, which must eventually converge towards a good of utmost saleability. Later the situation changed due to factual circumstances, when fiat money became common after the collapse of the Bretton Woods system in the 1970s. However, the basic premises of monetary theory seemed largely settled, and the discipline was reluctant to re-examine them. Fundamental questions about the actual phenomenology of money had little appeal, as the vanguard of monetary research advanced ever new theoretical models of growing complexity. As a consequence, the recent advent of digital crypto-currencies that is based on inventive algorithms developed by computer scientists eventually took the economics discipline by surprise. The key message of this paper is that digitization forces us to rethink the basic phenomenology of money along Schumpeter's conception of a social technology of account in the credit economy. At a time when money was generally conceived in its material form and intrinsic qualities, he identified its principal function with the clearing of current accounts that establish the accepted differences between debits and claims. He even pointed at a hypothetical general ledger of economic transactions to be its purest form and logical conclusion. Furthermore, he believed that in the course of history the evolution of a form tends to crystallize its essential nature and indispensable functions and was confident that this also applies to the social institution of money.

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Keywords: Evolution of money, Schumpeter's monetary theory, Austrian economics, currency competition, CBDCs

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