There are several theories of the value of money, ranging from early commodity-based views, such as those of Aristotle and the classical economists, to modern institutional and behavioral approaches. These theories reflect different understandings of what gives money its purchasing power — whether it is the intrinsic value of the material it’s made of, the legal authority of the state, the expectations and preferences of individuals, or the historical continuity of its use.
One of the earliest coherent theories of the value of money was proposed by Bernardo Davanzati, a Florentine thinker who published Lezione delle monete in 1588. He claimed that if we divide the total value of all goods on Earth by the quantity of available monetary metal (gold), we can derive exchange ratios between commodities and units of money.
„To be always acquainted with the Rule and Arithmetical Proportion which things bear among themselves and with Gold, it were necessary to look down from Heaven, or some exalted Prospect upon all the things that exist, or are done upon the Earth; or rather to count their Images reflected in the Heavens as in a true Mirror. Then we might cast up the Sum and say, There is on Earth just so much Gold, so many Things, so many Men, so many Desires: As many of those Desires as any thing can satisfy, so much it is worth of another thing, so much Gold it is worth.“[1]
Although Ludwig von Mises[2] dismissed this approach as “in no way supported by facts” and developed a theory of monetary value rooted in the commodity nature of money and his Regression Theorem, we can observe the rebirth of Davanzati‑style thinking among bitcoiners.
Bitcoiners take the world’s total long‑term capital and divide it by 21 million bitcoins to show the potential price of one coin. Or they take the world population and divide it by 21 million by to illustrate Bitcoin’s scarcity.
We know similar “top-down” reasoning from Crusoe-style economic models: We consider the island as a whole, assign the total monetary base to the set of all goods, and derive the prices of individual items from their relative ratio (if five fish trade for $100 and the money supply doubles (ceteris paribus), the price of one fish rises from $20 to $40).
People who “don’t understand Bitcoin” have likely never looked at it through the lens of Davanzati’s theory. If someone views money from a nominalist or positivist perspective, then the idea that one bitcoin could be worth one million dollars sounds like pure fiction. Not for Davanzati’s followers.
It is therefore possible that the rising value of Bitcoin stems precisely from this quality: as a monetary good that, increasingly free from imperfections, begins to reflect the aggregate value of all scarce things on Earth — just as Davanzati once imagined.
Dr. Jozef Martiniak,
Ausekon – Institute of Austrian School of Economics
[1] A Discourse upon Coins by Signor Bernardo Davanzati, a gentleman of Florence, being publickly spoken in the academy there, anno 1588 ; translated out of Italian by John Toland (1696)