Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

The Legal Nature of the Monetary Irregular-Deposit Contract 21through a repetitive, evolutionary process. Perhaps one of CarlMenger’s most important contributions was the developmentof a complete economic theory of social institutions. Accordingto his theory, social institutions arise as the result of an evolutionaryprocess in which innumerable human beings interact,each one equipped with his own small personal heritage of subjectiveknowledge, practical experiences, desires, concerns,goals, doubts, feelings, etc. By means of this spontaneous evolutionaryprocess, a series of behavior patterns or institutionsemerges in the realms of economics and language, as well aslaw, and these behaviors make life in society possible. Mengerdiscovered that institutions appear through a social processcomposed of a multiplicity of human actions, which is alwaysled by a relatively small group of individuals who, in their particularhistorical and geographical circumstances, are the firstones to discover that certain patterns of behavior help themattain their goals more efficiently. This discovery initiates adecentralized trial and error process encompassing many generations,in which the most effective behavior patterns graduallybecome more widespread as they successfully countersocial maladjustments. Thus there is an unconscious socialprocess of learning by imitation which explains how the pioneeringbehavior of these most successful and creative individualscatches on and eventually extends to the rest of society.Also, due to this evolutionary process, those societies whichfirst adopt successful principles and institutions tend to spreadand prevail over other social groups. Although Menger developedhis theory in relation to the origin and evolution of money,he also mentions that the same essential theoretical frameworkcan be easily applied to the study of the origins and developmentof language, as well as to our present topic, juridical institutions.Hence the paradoxical fact that the moral, juridical, economicand linguistic institutions which are most important andessential to man’s life in society are not of his own creation,because he lacks the necessary intellectual might to assimilatethe vast body of random information that these institutionsgenerate. On the contrary, these institutions inevitably andspontaneously emanate from the social processes of human