“What appears at first glance to be a cautionary tale about the lust for gold turns out to be a much more complicated fable about the creation of coined money by the state”
“In the wake of the financial crisis, an old school of monetary history, sometimes called chartalism, gained new momentum. Introduced by the German historian G.F. Knapp in 1905, chartalism suggests that received wisdom had the relationship between the market and the state backward: It is not that money, generated by the market, is appropriated by the state in order to finance public spending, but rather that the state, by accepting the money it mints as payment for taxes, gives it a guaranteed value that makes it useful for other kinds of transactions. The story of circulation always begins with the state.”
“In Locke’s enticingly simple fable, the origin of money preceded the existence of the state: It arose when primitive man chose to use precious metals to store and exchange value in place of perishable goods, making the accumulation of wealth possible. Updated and reimagined, inflected by the theories of Adam Smith and William Stanley Jevons, Locke’s story formed the nucleus of neoclassical economists’ fable of money’s origins, in which it arises to address the inconveniences of barter.”
“For chartalists, there are several problems with this account. To begin with, no evidence of any premonetary society structured by barter exists, whereas an increasing amount of anthropological research suggests that most societies throughout history have allocated goods through very different systems of distribution, such as gift exchange. Where barter is present at all, it typically arises after the invention of money rather than before it. More damningly—for little if anything in neoclassical economics rests on the historicity of the tale—it gets the nature of money wrong. In Desan’s version of the chartalist view, money arises out of taxation. A central authority with the power to collect and redistribute community property issues tokens representing a share of the general store of goods. Because this authority decides what contributions it will demand and what tokens it will accept, it has the unique power to confer a broader circulation on its own tokens – to create fiat money.”