Coin Minted During the Reign of King Herod
That’s the title of an article in this week’s Economist. The piece looks at the two basic theories of how money emerged. We don’t know exactly when money was invented, so this a topic that has been the subject of a great deal of speculation by economists, anthropologists, and others. One group of scholars, the Cartalists, argues that money was invented by governments so as to strengthen their coercive power over their subjects. The other school of thought objects to the theory that it takes a state to create money. They point out that various currencies have emerged spontaneously and without the involvement of the state. (The use of drugs as a currency in prisons is a classic example of a form of money that emerged despite the state). There is archaeological evidence that can support both sides in this debate. As the Economist pointed out, debate over money’s origins is of interest to far more than collectors of ancient coins, for if the Cartalist view of money’s origins and function is correct, the prospect of the Euro project succeeding without the creation of a European superstate are slimmer than if the opposite theory is correct. The Cartalist theory says that for a currency to survive for long, it needs to be backed by a state (i.e., an entity with the power to tax) which the EU most certainly is not.
The Economist article has generated a lively online debate about the history and functions of money. George Selgin, who wrote an excellent history of private coinage in England, has contributed to this debate on his blog (see here).
The Past Speaks 