History of Money


There are two main schools of thought around the origins and meaning of money and what is its real source of value. One view holds that money is something with intrinsic or “hard” value. This school known as “metallism” states that money’s value comes from its intrinsic worth, usually relating to the value of silver or gold (Katsari, 2016). In the past, other commodities, such as grain and cocoa beans, have also fit this role. This metallist view states that these commodities have served as money through history because they have inherent worth determined by the market (Katsari, 2016). Paper money can fit into this metallist view as long as it is backed up by some hard commodity such as silver or gold (such as under the gold standard). The opposing view, known as “chartalism,” states that money itself does not have any intrinsic or inherent value. This “soft” money could be a piece of paper, like a $5 dollar bill, which has no inherent worth. In this view, the government is responsible for the original creation of this money and its value in exchange. Metallists believe money was created out of barter, eventually replacing it in most societies (Katsari, 2016). Money is a creation of the private market, with government just acting as a type of regulator or referee. Chartalists, on the other hand, believe debt or credit systems lead to the evolution of money. In this paper, we evaluate the strengths and weaknesses of each of these schools of thought.

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Precious Metals Used as Money

According to metallists, money is believed to have grown as the medium of exchange while keeping in mind the end goal to dispose of the conspicuous constraints of batter trade. Community is believed to have chosen on valuable precious metals money with the goal that money will have inherent value (Katsari, 2016). The money’s value is, therefore, clarified as far as its valuable metal substance or support. As a producible ware, metallist money was truly the same as whatever other product. To ensure the weightiness and virtue of valuable metal as cash, a stamp confirming its trustworthiness came to be required before it could circle broadly. The government could assume a part regarding delivering stamped coinage; however, much of the government energy were channeled to give support to the will of the private sectors (Davidson, 1999).

Monetary as a Natural Media of Exchange

In the old and present day metallists, that includes monetarists, regard money as superfluous to “genuine” examination in financial matters (Davidson, 1999). They trusted money’s capacity to work as the medium of trade relied on upon its being aware with a trade value free of its frame as money. According to Milton Friedman, “Nothing is so unimportant as the quantity of money expressed in terms of the nominal monetary unit… The situation is very different with respect to the real quantity of money” (Davidson, 1999, p.197). At the end of the day, the economy carries on, in any event over the long haul, as if money were only an impartial means of trade.

Problems with Metallists

Whenever papers or coins with no valuable metal substance came into utilization, metallists clarified the move as per the premise that they were “upheld” by valuable metals that would permeate them or add value to them (Cesarano, 2014). At the point when the group kept on tolerating naturally, useless papers such that after the end of metal sponsorship, metallists remained with an essential issue. However, whenever paper and coins having no valuable metal substance came into utilization, metallists clarified the move on the premise that they were “supported” by valuable metals, which would instill them with esteem. At the point when the group kept on tolerating inherently useless paper after the disposal of metal support, metallists were left with a principal issue (Cesarano, 2014).

The State Monopoly and Chartalists

Chartalists put the state in the middle of everyone’s attention (Cesarano, 2014). They contend that the time of chartalist or state money was achieved when the state asserted the privilege to announce what thing ought to reply as money in installment of obligations owed to it. The Cutting-Edge State has expected syndication in the making of the money that it will acknowledge in installment of expenses and different liabilities due. Clearly, the state must profit accessible to people in general before the general population can release its obligations to the State (Cesarano, 2014).

Money as a Form of IOU

The state issues its money by just spending it on products, administrations, or monetary resources accessible from general society (Cesarano, 2014). State money is an advantage for the person who holds it, and a risk to the state itself, an IOU or guarantee to acknowledge it in installment of charges (Peacock, 2004). Interestingly, immaculate item money of metallism is a resource for its holder and an obligation to nobody. It cannot be seen with regards to a monetary record operation. At last, the estimation of chartal money includes a readiness to acknowledge another’s IOU. The estimation of state money originates from the way that almost all family units require some of its IOUs to pay charges or different expenses to the state (Peacock, 2004). Being in wide request, it normally ends up plainly helpful as a medium of trade inside the private division. There can be undoubtedly financial frameworks of current economies depend on chartal money.


While the chartalist school seems to be in place in today’s global non-metal backed soft currency system there are many people who see this as a weakness. However, in general chartalist thought has strong point that can be approved as opposed to metallists. Chartalist argument agrees more with the current monetary systems and methods of payment. To that effect, chartalist is more relevant and much applicable. I, therefore, support the chartalist school to be the future foundation of global money system (Peacock, 2004).



Cesarano, F. (2014). The puzzle of metallism: Searching for the nature of money. History of Political Economy, 46(2), 177-210.

Davidson, L. (1999). Can money be neutral even in the long run? Chartalism vs monetarism. In Uncertainty, international money, employment and theory (pp. 196-210). Springer.

Katsari, C. (2016). Metallism vs. chartalism. In The Roman monetary system (pp. 244-253). Cambridge University Press.

Peacock, M. (2004). The state, the market and the euro: Chartalism versus metallism in the theory of money. European Journal of Political Economy, 20(4), 1097-1098.