Israel Kirzner cautions us that, because commodity price arbitrage as such does not operate outside commodity markets, the logic of Pareto-improving entrepreneurship does not provide a “copybook example” for explaining the evolution of social institutions in general. He characterizes Menger’s theory of the emergence of money as non-entrepreneurial; by implication, while it assures us that some monetary standard will emerge, it does not assure us that a superior monetary standard will spontaneously emerge. The author argues that entrepreneurial opportunities for private gain do in fact drive the Mengerian evolution from barter to money, and systematically promote the emergence of superior monetary standards, though not necessarily the best conceivable standards. In choosing among potential exchange media (of equally widespread popularity) to accept and offer, a pre-monetary trader has a private incentive to choose commodities that have whatever properties (portability, divisibility, and so on) other traders prefer in their exchange media.
Read the article at Berkeley Electronic Press.