So not only was silver already an internationally recognized money, but the earliest recorded states were already corrupting domestic money markets. Just as more modern governments would do thousands of years later with gold and silver, these Sumerian authorities mandated a fixed exchange rate between the two commodities, leading people to use the artificially overvalued one—in this case, barley—while the government hoarded the other.
https://mises.org/wire/progressives-have-corrupted-not-only-money-its-history-well
As modern monetary theory (MMT) gains prominence in the political sphere, it has revitalized interest in some older theories about the origin of money—namely, the state and credit theories of money.
The credit theory of money says that money is simply a unit for measuring debt. And the state theory of money, or chartalism, as it is often known, says that this measurement was created by the state. These days, the two theories are often combined and championed by proponents of MMT who argue that most of the economic constraints put on government are imaginary because the government can simply create money.
The MMT debate is about the nature of money itself, and these theories about the origin of money are central to understanding this alternative way of thinking that’s gaining popularity on the progressive left. However, when one looks, it’s clear that both the theory and history presented as evidence for the state and credit theories of money don’t hold up, especially when compared to the Austrian alternative.
Readers of this website are likely familiar with the Austrian theory of the origin of money, developed by Carl Menger and synthesized by Ludwig von Mises. But to review it quickly, money developed as a way to make trade easier. At some point in the past, humans began using their property to produce goods beyond what the natural environment had provided.
Certain goods became valued, not just for direct consumption but also because of their salability. In other words, people started wanting certain goods because they knew others would trade for them. A good used in this way is called a medium of exchange. Thanks to the network effect, one or a small number of media of exchange would become nearly universally accepted among a society. That’s when it becomes a money.
Historically, precious metals became monies. Currencies were simply a unit of weight in a precious metal. Once a money had been established, people could specialize their labor, and the number of prices—that is, records of past exchange ratios—to keep track of was greatly reduced. That makes entrepreneurship, production, and therefore civilization as we know it possible.
The important insight here is that money gets its value as a money from what it’s able to buy and that it, therefore, must have originated out of a good or commodity produced for some other purpose that was then found to be particularly saleable.
The state and credit theorists reject this entirely as bad theory disproven by the historical record. They instead frame money as a unit of debt.
Debt, credit theorists say, is something that has been around far longer than money. It’s the obligations people have to one another. If a person gives a neighbor some livestock, that neighbor is then obligated to repay the benefactor in kind at some point in the future. They are in debt. Similarly, if one assaults someone else or destroys their property, they are obligated to pay restitution to the victim—or the victim’s family—and are therefore in debt.
Credit theorists argue that money is simply a unit that governments invented to quantify debt. Some say it arose as early states attempted to quantify restitution payments for violent crimes. This unit of debt is then imposed on everyone by the government through taxes. Only then are these state-created IOUs used as a medium of exchange.
In contrast to the Austrians, these theorists see money not as a social institution developed through cooperation but as a state institution imposed on people through violence. It’s not only a disturbing and rather sad view of people and society, it’s also bad theory.
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