|SHOULD BITCOIN'S BIRTH HAVE BEEN IMPOSSIBLE?|
Aruba, January 4, 2017 - Today is Bitcoin’s 8th birthday. The digital currency’s fans can celebrate the day with extra joy (and perhaps expensive libations), since its price has run up to over $1,000.
On January 3, 2009, the first bitcoins were mined from the “Genesis block.” While that Bitcoin’s technological birth, it wasn’t born economically until some time afterward, when someone first accepted it as payment for a commodity or service. That was the origin of its value as a medium of exchange, the role that makes Bitcoin so potentially world-changing.
Some thought such a moment should have been impossible, or was at least problematic. Bitcoin was never a commodity. And according to Austrian economics as they understood it, money can only originate out of the barter of commodities.
The Origin of Money
In the 19th century, Carl Menger, the founder of Austrian economics, explained how money can arise out of barter. His theory debunked the prevailing myth that money must have originated from government decree. The market was fully capable of creating money without the help of the State.
According to Menger, money emerges as an entrepreneurial solution to a universal problem in barter markets. It’s hard to find a seller of exactly the commodity you want who happens to want exactly the commodity you offer.
So instead of only acquiring goods he wants to use himself, a savvy merchant will build a reserve of commodities that are highly “saleable” or “liquid”: i.e., that have such a wide and steady demand, that it’s relatively easy to trade it at its full market exchange rate for just about anything he wants to buy. He accumulates these, not just to use himself, but to exchange for something else he does want to use.
As the great Austrian economist Ludwig von Mises later characterized it, such goods become extra-valuable, because they have “exchange value” on top of their “use value.” They are no longer just commodities, but “media of exchange.” When a medium of exchange becomes so popular that it’s accepted as payment by virtually everyone in the economy, it is called a “money.”