Research pick: Cashing up a new theory of money - "Revisiting the origin of money: from precious metals to work: alternative pathways on the origin of currency and its impact on modern economics"

In the International Journal of Pluralism and Economics Education, Bas Dommerholt of the Dutch Authority for the Financial Markets in The Netherlands, explores the history of money from the earliest coins and notes to the world of digital “crypto” currencies.

Dommerholt’s analysis of the evolution of money offers a new perspective that diverges from conventional theories. He suggests that the roots of money can be traced back to early agricultural societies. Early farmers kept records of food distributions, and it is these that over the course of prehistory evolved into wage standards. And from there the calculation of production costs and the filling in of balance sheets. Eventually, coins were minted as tokens of these. Coins, often considered the first form of money, emerged as tokens of credit backed by precious metals.

This novel historical narrative has implications for contemporary economic policies, from addressing predatory lending practices to understanding the rise of digital currencies. Dommerholt’s findings suggest that educators could benefit from integrating this perspective to provide students with a more nuanced historical understanding of money.

In Western philosophy, money is a pivotal element, integral to the modern production and distribution of goods and fundamental to the market economy. Despite its importance, the public’s understanding of money remains muddled, partly due to the inadequate representation of money’s history in educational materials. Dommerholt argues for a comprehensive and objective depiction of money in public education with a modern perspective rather than some of the outdated textbook definitions.

Traditionally, it has been believed that money and prices evolved from market transactions involving precious metals. However, the article highlights a critical transition in the nature of money: modern money is no longer based on metals but is an official administrative unit with a market value that floats under governmental control. This shift has profound implications for current policy debates, distinguishing between the traditional and modern understandings of money.

The research builds on chartal theory. This theory suggests that money’s origins actually lie not in markets or material measurements but in government administration and record-keeping. In this theory, money originated from government records of taxes paid in kind. Many educational resources still describe the evolution of money from barter systems and privately owned precious metals, which the evidence suggests is not the case.

The evidence shows that early accounting practices were tied to central institutions responsible for food distribution, with prices evolving from labour cost benchmarks. Coins were introduced later as interest-free notes of credit and backed by precious metals to ensure trust and stability. By fixing the misconceptions about the origins of money, Dommerholt hopes to improve debate and discussion regarding modern lending practices, financial globalization, and digital currencies.

Dommerholt, B. (2023) ‘Revisiting the origin of money: from precious metals to work: alternative pathways on the origin of currency and its impact on modern economics’, Int. J. Pluralism and Economics Education, Vol. 14, Nos. 3/4, pp.219–233.