Is the Market a Test of Truth and Beauty?

Chapter ǵ: Henry George and Austrian Economics ȄȈ

other. Ļey were not simply agreeing with everyone else that both are
useful social institutions. Ļey recognized both, in Hayek’s words, as
“results of human action but not of human design.” (Ļat insight may
be familiar nowadays, but it was not so when George and Menger and
even when Hayek were developing it.) Instead of being deliberately
invented and instituted, money evolved spontaneously. George explains
that it evolved from the most readily exchangeable commodities, which
individuals employed in indirect barter because doing so afforded them
economies in conducting their transactions. Ļe medium of exchange
naturally drifted into being also used as the measure of value or unit of
account.
George anticipated the analogy more recently developed by Hayek
and others:

While the use of money is almost as universal as the use of languages,

and it everywhere follows general laws as does the use of languages, yet

as we find language differing in time and place, so do we find money

differing. In fact, as we shall see, money is in one of its functions a kind

of language—the language of value. (SPE, p.ȃȈȃ)

George anticipated, in at least a rudimentary way, the cash-balance

approach to monetary theory later developed independently by Mises

(ȀȈȀȁ/ȀȈȇȀ) and others. Ļe demand for cash balances is accounted for by

the services that they render to their holders (George presents examples in

SPE, pp.ȃȇȃ–ȃȇȆ). Ļe development of credit promotes economics in the

holding and transfer of the actual medium of exchange. “Money’s most

important use today is as a measure of value.”Ȇ

ŗŚśţŘőŐœő, ŏśśŞŐŕŚōŠŕśŚ, ōŚŐ šŚŜŘōŚŚőŐ śŞŐőŞ

So far this study has reviewed points on which George shared or antic-

ipated Austrian insights only incompletely. Now it turns to some major

points of agreement.

ȆĻe quotation is taken from a subheading inSPE, p.Ȅǿȃ. Ļe insight expressed

there brings to mind present-day proposals for achieving monetary reform and macroe-

conomic stability by defining a stable measure of value distinct from the medium of

exchange, with the choice and the supply of the latter being left to unregulated private

enterprise. Describing such proposals, however, would carry us too far from our present

topic.