ABSTRACT
This chapter focuses on two major topics: Menger’s theory of the origins of money, and the Mises-Hayek theory of economic fluctuations. The Mises-Hayek theory of economic fluctuations analyzes the interplay between monetary disturbances, resource scarcities and entrepreneurial expectations. The chapter focuses on points of convergence and divergence between the earlier Austrian theories and modern formulations of the problems. In his theory of the origins of money, Menger adopted a microeconomic approach to analyzing the evolution of money and monetary institutions. In contrast, Hayek integrated the analysis of the value of money with that of the determination of relative prices. Specialized production depends on the ability of transactors to calculate efficiently, and money alone makes this calculation possible. In particular, we argue that the distinction between typical and unique aspects of phenomena is especially useful in analyzing economic fluctuations. The difference between a money and a barter economy is the essential ingredient in any analysis of economic fluctuations.
