Carl Menger’s “Money” and the Current Neoclassical Models of Money

The paper analyzes three neoclassical models of money with emphasis on the equilibrium concepts employed. It is argued that the neoclassical theories fail to analyze the emergence of the social institution of money. Instead, they focus on the consistency of individual decisions regarding the rational acceptability of intrinsically worthless objects given the social institution of money and the Pareto superiority of the allocations in monetary vis-à-vis barter economies. The equilibrium concepts employed by neoclassical theories are not suitable for the study of the emergence of new electronic payment systems. Instead, a theory of the emergence of social institutions, of institutional change is required: the Mengerian method of institutional analysis.