Early American monetary history and discusses how it supports Menger's monetary theory, contrasting with the ideas of chartalists and modern monetary theory advocates. It draws on the work of Curtis P. Nettels to illustrate the importance of barter and commodity money in colonial America.
1. Menger's Monetary Theory:
• Menger's theory explains that in a barter economy, certain valued goods are used for indirect exchange due to their desirable characteristics (scarcity, divisibility, portability, etc.).
• Direct exchange requires mutual desire for each other's goods, limiting economic growth and calculation.
• Indirect exchange allows people to trade goods for money, which can then be used to acquire a variety of goods.
2. Historical Evidence vs. Chartalism:
• The article separates Menger's a priori theory from chartalism, which connects government action to the creation of money.
• Menger’s theory is based on logical conditions, while chartalism relies on historical institutional claims about state involvement in money.
3. Colonial America’s Currency:
• Colonial American currency was heavily influenced by English monetary practices.
• The absence of coins led colonists to use goods like wheat, tobacco, and pork as money.
• Nettels observed that trade with England affected local currency conditions and prices were often denominated in British units.
4. Barter and Commodity Money:
• Barter had many limitations; merchants faced significant challenges without money.
• Nettels documented that certain commodities emerged as accepted media of exchange, confirmed by laws and trade practices.
5. Government Intervention:
• While governments recognized and enforced certain commodities (e.g., tobacco and wheat) as money, this acknowledgment presupposes that such commodities were already in use.
• The law allowed commodities to perform as money in public transactions but did not create their value; that emerged from market-driven demand.
6. Examples of Commodities as Money:
• Different regions in colonial America had specific goods that served as money:
• In South Carolina: wheat, pork, tobacco, and tar were standardized as money.
• Virginia relied heavily on tobacco as currency.
• Northern colonies like Massachusetts and Pennsylvania used a range of goods, including various grains and livestock.
7. Mengerian Theory Supported by Historical Evidence:
• Nettels’ work confirms that commodity money arose from barter and market demand, aligning with Menger's theory.
• The acceptance of commodities as currency did not come solely from government action but also from their inherent desirability in trade.
The analysis of early American monetary practices reveals a strong alignment with Menger's monetary theory rather than chartalism. Historical evidence from colonial times shows that commodity money emerged through voluntary exchange and market need, demonstrating how certain goods became generally accepted media of exchange long before government intervention affirmed their use.
https://mises.org/mises-wire/barter-media-exchange-and-colonial-america