Meanwhile, here's a random thought about the economist Carl Menger and the real economy. In one sense Menger’s commodity theory of money needs no defenders. It became foundational to the attitudes which still prevail within mainstream modern economics. It has not only been influential, but pernicious. By trying to show how money could emerge from self-interested bartering individuals “without convention, without legal compulsion, nay, even without any regard to the common interest” (Menger 1892), Menger contributed to the dogmatic neoclassical notion that “all phenomena must be explained as a result of their utility for the maximizing individual” (Ingham 2004).
If money-ness really is, as Menger suggests, woven into all kinds of commodities, how would it appear if it were quantified directly? That is, if its presence were perceived rather than imperfectly inferred from scattered exchanges of commodities? Menger is also famous for his subjective theory of value, and it's in this vein that Menger shrewdly observes how the sale of an article at a specific price does tell us everything about the money-ness wrapped up in that article, since “it does not lie within our power, when we have bought an article for a certain price, to sell it again forthwith at the same price” (Menger 1892).
Furthermore, Menger’s caution that “the nature of that process would be but very incompletely explained if we were to call it ‘organic’ or denote money as something ‘primordial’” has proved less influential, as has his later work, which reinscribes a role for the state. The theme of spontaneous, commodity money from ‘On the Origin of Money,’ mingled into quantity theory, has instead been used to simplify and sideline the role of money. “The most startling paradox [...] is the fact that the mainstream, or orthodox, tradition of modern economics does not attach much theoretical importance to money” (Ingham 2004).
Even the power of financial derivatives markets may be downplayed, despite their size being far greater than that of commodity markets. Derivatives markets are said to be merely a sophisticated superstructure representing relationships within the real global economy, and managing risks within that volume of real value.
This is reflected in some of the language of finance. Derivatives are ‘derived’ from a pre-existing essence of financial value. Similarly, any large drop in stock price – regardless whether it is traced to a hurricane; to the outbreak of war; to a disappointing quarterly report; to an emergent anomaly in high frequency trading algorithms; or to powerful investors dumping their holdings to force the price down and repurchase the stock more cheaply later on – is always a ‘correction,’ as if it were a re-alignment to an essence of financial value which was there all along. But there are no corrections, no re-alignments to pre-existing monetary essences.
But. Although Menger’s commodity theory lends itself to misapplication, it is not in itself guilty of this kind of reification. Menger recognizes, as many who borrow opportunistically from him do not, that the financial value which he sees as inextricable from commodities is a social construct. That is to say, for Menger, financial value is socially constructed in a sense continuous with the social construction of the commodities themselves.
I'm not saying we should give the guy a break, or anything.