The regression theorem refers to a theory of the origin of money which states that money must have originated as a commodity with intrinsic value in the market. This idea was first proposed by Austrian economist Karl Menger in his 1892 work “On the Origin of Money”. Regression theory is offered as an alternative to the state theory of money which states that money can exist only when it is supported by the government. However, regression theory argues that money comes into existence through a gradual process of market development, without the need for any government approval.
Economists trying to explain regression theory usually start with the question of why money, especially fiat money, which is just a piece of paper, has no value in the market. That is, why is a currency like the US dollar which is a piece of paper widely accepted by the people? The most common answer to this question is that fiat money can be used to buy other useful goods such as houses, cars, etc. But this answer is insufficient – it tries to tackle the question of why fiat money can buy other useful stuff by simply saying it can buy other useful stuff. So why is fiat money, which has little intrinsic value, considered valuable?
In real life, people currently accept money in exchange for goods because they know that money was accepted as a medium in exchange for other goods in the past. For example, people today accept wages in US dollars because they know that dollars were used yesterday at the market to buy cars, groceries, and other items. This gives them confidence in the value of their money. But what made people accept the US dollar in exchange for other useful items in the past?
Economists advocating the regression theory of wealth argue that money may have originated in the form of a useful commodity like gold or silver. This is the only way, he argues, it could possibly have been accepted by people in exchange for other useful items at some point in the past. If a commodity had no intrinsic value, it is unlikely that people in the market would have accepted it in exchange for other goods and services. So, the argument of these economists is that commodities like gold and silver may have been traded in exchange for other goods and services at some point in history because they offered people some sort of personal utility. For example, these precious metals could have been used for making jewellery, filling teeth, etc., which gives them intrinsic value.
As gold and silver were more widely accepted in the market for their intrinsic value, they would have become acceptable even to those who did not derive any direct value from their use. In other words, people may have started accepting precious metals, even if they had not made any direct use of these metals because they believed that they could pass these metals to other people (who wanted gold and silver for their intrinsic value). were) for other useful goods. they really wanted to. This is the first step in the spontaneous process of currency development in the market, which eventually led to the acceptance of precious metals by people for their exchange value. Other advantages may also have been found in precious metals. For example, gold is not easily destroyed by the elements of nature because of its physical properties and it retains its value over time because the supply of gold cannot be easily increased because mining gold involves significant production costs. is included.
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