Why the “State Theory of Money” Doesn’t Explain the Coinage of Precious Metals

I ’ve begun working on a new book on the gold standard. In the first chapter I plan to discuss the origin of money, as a preliminary to discussing how silver and gold became the world’s dominant commodity monies.The topic of the origin of money has become controversial in recent years. The dominant view among economists (for good reason), suggested by Adam Smith in the eighteenth century and fleshed out by Carl Menger in the nineteenth, is that money is a market-born institution. Convergence on one or two commodities as the common media of payment emerged from the actions of barterers seeking more effective trading strategies, without anyone aiming at the final result. But this view has lately been challenged by a resurgence of the “state theory of money,” also known as Cartalism, which argues that governments played an essential role in the establishment of money.Money ’s Origins: A Cartalist ViewCartalists have made the valid point that extensive specialization in production could not have preceded the development of commonly accepted media of exchange; rather, greater specialization and wider acceptance of media of exchange must have developed together. But this is a useful expositional caveat rather than a refutation of the Mengerian theory. While a lecturer spelling out the Mengerian theory (and I have done this myself) may ask the listener to imagine a highly specialized producer (say, an asparagus farmer) entering a moneyless market and meeting frustration in...

Source: Cato-at-liberty - August 24, 2017 Category: American Health Authors: Lawrence H. White Source Type: blogs