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Metallism and Chartalism

Stephanie Bell (edited by William Hummel)

The following commentary was extracted, along with some editing by William Hummel, from a paper titled The Hierarchy of Money by Stephanie Bell [1], which was written for the Levy Economics Institute. The edited commentary appeared in Hummel’s Understanding Money email network on 7 Aug, 2014.

There is no shortage of views on the nature and role of money among the different schools of economics. However subtle the differences may be, they can all be associated with one of two basic theories, metallism or chartalism. Chartalism is a term derived from the Latin word ‘charta’ meaning a ticket or token. Chartal money is the token for value, while metallist money is the thing of value itself.

Metallists believe money developed spontaneously as a medium of exchange in order to eliminate the obvious limitations of barter. Society is thought to have settled on precious metal as currency so that money would have intrinsic value. Money’s value then is explained in terms of its precious metal content or backing.

As a producible commodity, metallist money was really no different from any other commodity. To guarantee the weight and purity of precious metal as money, a stamp certifying its integrity came to be required before it could circulate widely. The State could play a role in terms of producing stamped coinage, but its power was viewed as limited to supporting the will of the private sector.

When coins or paper with no precious metal content came into use, metallists explained the transition on the basis that they were ‘backed’ by precious metals which would imbue them with value. When the community continued to accept intrinsically worthless paper after the elimination of metal backing, metallists were left with a fundamental problem.

Chartalists place the State center- stage. They argue that the age of chartalist or State money was reached when the State claimed the right to declare what entity should answer as money in payment of financial obligations to the State. The modern State has assumed a monopoly in the creation of the money that it will accept in payment of taxes and other liabilities due to it. Obviously the State must make its money available to the public before the public can discharge these financial obligations.

The State issues its money by simply spending it on goods, services, or financial assets available from the public. Ultimately, the value of chartal money involves a mutual willingness to accept it for monetary transactions.

The value of State money derives from the fact that nearly all households require some of it in order to pay taxes or other fees to the State. Being in wide demand, it naturally becomes useful as a medium of exchange within the private sector. There can be no doubt that the monetary systems of modern economies are based on chartal money.


Stephanie Bell is a professor of economics and is attached to the University of Missouri – Kansas City.

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