Menger vs. Chartalism on the Origins of Money: Theory and History

Michael Watson

Advisor: Lawrence H White, PhD, Department of Economics

Committee Members: David Levy, Christopher J. Coyne, Leonidas Zelmanovitz

Online Location, Online
June 07, 2022, 12:00 PM to 02:00 PM


The dissertation begins by rebutting the Chartalist criticism that Menger’s theory of money cannot explain credit existing before money. The second chapter is an application of the first to late 4th Millennium BC Mesopotamia where Chartalists claim falsify the Mengerian account. The third chapter argues the evidence from Mesopotamia from the early 3rd Millennium BC to 330 BC supports a Neo-Mengerian account on the origins of money and defends the application of standard price theory to Ancient Mesopotamia.

The first chapter begins discussing how credit-theory proponents, such as A. Mitchell Innes and his contemporaries, argue Carl Menger's timeline for the origin of money, accepted by most economists, is wrong. Rather than credit coming into existence after money has emerged as a means of eliminating a barter system’s need for a double coincidence of wants, credit-theory proponents argue credit precedes barter. Thus, Menger is historically said to be false. What the followers of A. Mitchell Innes miss, however, is that barter may occur intertemporally—credit may be extended and repaid in goods rather than in money. The incorporation of intertemporal barter into Menger's account on the emergence of money strengthens his story: goods which are more portable, uniform, durable, and divisible will be more suitable for intertemporal transactions than goods that are not. Further, the origin of money is not necessarily grounded in a commodity, but in a scarce good with nonmonetary value.

The second chapter is an application of the first chapter to the late 4th Millennium BC. Chartalists, followers of Karl Polanyi, proponents of the credit-theory of money, and others argue the evidence from Mesopotamia in the 4th Millennium BC falsifies the Mengerian account on the origins of money. As a result, Menger’s account is conjectural and ahistorical without much, if any, historical evidence. Following Denise Schmandt-Besserat’s seminal interpretation on the purpose of clay tokens in Mesopotamia, Chartalists argue such tokens were accounting tools, which preceded any common medium of exchange, did not emerge out of any market or voluntary exchange, and best fit the state and credit theories of money articulated by Georg F. Knapp and A. Mitchell Innes. However, Menger’s account is not contradicted by Schmandt-Besserat’s thesis once more recent ‘Neo-Mengerian’ scholarship is brought to attention. Specifically, when the crux of Menger’s story is on the marketability and the original nonmonetary use of the thing which becomes money, rather than his historical timeline.

Finally, the third chapter surveys the scholarship on Ancient Mesopotamia. Chartalists and the scholarship in the tradition of Karl Polanyi believe Menger’s theory of money and standard price theory is inapplicable to Ancient Mesopotamian history, especially before the 2nd Millennium. Here the evidence between 2700 BC to 330 BC is considered regarding what Neo-Mengerian monetary theory and standard price theory would expect to find. The history, especially newer scholarship, confirms the traditional Mengerian account and the universal applicability of standard price theory to wherever there exists constrained choice.