MMT heeft het mis over

Proponents of Modern Monetary Theory (MMT) believe that money is a “creation of the state.” They argue that money is what the state says it is, and that it is primarily created through taxes. For them, money is “what [the state] accepts at public payhouses (primarily for the payment of taxes).”

MMTers dispute the Mengerian theory of the origins of money, arguing that it is “based on false ahistorical assumptions.” Carl Menger argued, based on common sense, that barter must have existed before money. In barter, people exchange goods for immediate use—they don’t use one good as a “bridge” or “medium” to obtain another good they actually want. As you can imagine, it can be very difficult to get what you want in the market. You have to find someone who has what you want and who simultaneously wants what you have. This condition for voluntary exchange is called the “double coincidence of wants,” and it is a serious limitation of markets for direct exchange.

Menger argued that market participants in such a situation would find that some goods are more “sellable” than others. You can buy corn or cotton and then quickly resell it with minimal (or no) loss. But for other goods, such as surgical instruments, it can take a long time to find a buyer—if you try to sell surgical instruments quickly, you’ll likely have to settle for a much lower price.

Market participants realize they can use more marketable goods as a step toward acquiring the goods they actually want for immediate use. For example, you might go to the market with surgical instruments and plan to return home with a new toaster. Instead of spending a lot of time and effort finding someone who sells a toaster and wants surgical instruments, you can more easily find someone who wants surgical instruments and is willing to trade eggs, a more marketable commodity. Then you take the eggs to the person selling the toaster, and everyone lives happily ever after.

Eggs aren’t the best money, so through trial and error, and with more and more people using one or two specific goods as a medium of exchange, we eventually arrive at money.

Why MMTers Reject Menger’s Theory

The theory is simple and uncontroversial, unless you’re an MMTer. If you’re an MMTer, money should be the rightful plaything of the state. Money should be the property and responsibility of the state, not the market. You should be okay with the state devaluing money or printing more paper to expropriate resources from the private market economy.

No wonder they attack Menger’s theory so fiercely.

Rather than proposing an alternative theory (the only “theory” about the origins of money I can find in the MMT literature is a collection of claims like “money is what the state collects in taxes”), MMTers point to historical case studies. One of their favorites is the cuneiform clay tablets from ancient Mesopotamia. Here’s what Randall Wray has to say about them:

The shubati (“received”) clay tablets record…debts. Each tablet recorded an amount of grain, the word shubati, the name of the person from whom it was received, the name of the person by whom it was received, the date and the seal of the recipient… The tablets circulated. A debt could be forgiven and taxes paid by delivering a tablet bearing someone else’s debt, after which the case recording the forgiven debt could be broken open to verify the terms of the debt.

Wray doesn’t cite any translations or interpretations of these tablets, nor any specific archaeological work. He cites only a like-minded economist, A. Mitchell Innes. Innes also doesn’t cite any specific historical research on the tablets. He claims only that “they correspond with the medieval tally stick and the modern bill of exchange” and that the tablets “undoubtedly passed from hand to hand.”

Money in the Ancient Near East

Rather than take Wray and Innes at their word, I decided to investigate what historians and archaeologists of the period actually say about the tablets and the Mesopotamian economy. Here’s what I found:

As far as I can tell, virtually all historians of this period agree that before coinage, silver, not clay tablets, was used as money in the ancient Near East. Regarding this consensus, Powell says:
Money, of course, did exist in ancient Mesopotamia.[…] The use of terms such as “money,” “currency,” “cash,” etc., by cuneiform scribes to designate silver is so ubiquitous in the literature of the last century and a half that, if money were not recorded in cuneiform documents, one would have to draw the improbable conclusion that anyone using the term had completely misunderstood the texts.

Rahmstorf provides a superb overview of the archaeological evidence. He also endorses the overwhelming consensus among historians of the period that silver was money. The dominance of scrap silver (“hacksilver,” irregular pieces of silver) is so evident in the textual and archaeological records that Rahmstorf questions whether coinage can truly be considered a significant monetary innovation. Before and after coinage (the issuance of standardized coins), silver was weighed in most transactions, and coins also appear in scrap silver deposits from before coinage. Thus, the monetary unit was clearly based on a weight of silver (for example, the shekel and the mina).
Speaking of weight, Ialongo et al. showed that the silver pieces in scrap silver hoards matched known standardized weights of the time: “The results of the statistical analyses on a silver pot from Ebla (Syria) strongly suggest that scrap silver in the Bronze Age Near East was shaped and/or fragmented to match the weights in use in the trade networks through which it circulated.”
Dutch Assyriologist Leemans noted that the tablets remained in the possession of those who received them—they were not used to transfer debts. Bonus: some of Leemans’ translations show that ancient Mesopotamians used silver to calculate profit.
Taxes were not paid with the tablets, nor were they paid in silver. Taxes were paid in kind, primarily with livestock and grain. Sharlach notes, “the transfers between the province and the crown were not ‘paper’ transactions…truly enormous loads were transported.” This means the MMTers are doubly wrong: 1) in their claim that the tablets were used to pay taxes; and 2) in their claim that taxes stimulate the demand for money. Silver was used as money, but taxes were collected in kind during the Ur III dynasty.
In the dozens of articles I’ve read about the clay tablets, I found no mention of the tablets as money—no mention of the tablets being exchanged at all.
In short, the historical evidence vindicates Menger and refutes the MMTers. The clay tablets were not an early form of fiat currency. They were receipts that clearly showed people using silver as money—a commodity with non-monetary applications—just as we would expect based on Menger’s theory.