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Posts Tagged ‘Chartalism’

A Fiat Money Origin Story

April 3, 2016 13 comments

Nick Rowe has a recent post about Chartalism which got me thinking about the fundamental explanation for the value of money again.  He calls this an “origin story” and seems to be of the opinion that the origin doesn’t really matter, once it gets going you can remove the original source of fundamental value and it just stays up.  Kinda like Wile E. Coyote running off a cliff.  As long as nobody looks down, we’re fine.  I personally think this is nuts.  But I figure, why not try going through the explanation like an “origin story” from primitive commodity money to modern fiat money.  Maybe that will help?  I have mostly tried to avoid all of that because it seems unnecessarily confusing and I usually want to distill the story down to its most fundamental point as much as possible.  However, I think maybe this leaves people too much room to fall back on little misconceptions that are deeply lodged their thinking about this.  So why not start from the beginning and try to hammer out all the points (or most of them) in one try?  For the record, this is not a historical work.  It’s a made-up history that I think is fairly consistent with reality as it unfolded in the western world.  Whether or not the Chinese had some type of script that was linked to taxes thousands of years ago or there were some hunter-gatherers somewhere with a credit-based economy before commodity money became prevalent is not relevant to my point. Read more…