Building the Cash Economy

 

Building the Cash Economy

Chartalism is a theory of money, which argues that money originated with a state’s attempt to direct economic activity. Money is not intended to be a solution to the problems with barter or as a means with which to monetize debt. Fiat currency or money has value in exchange because it empowers the sovereign state to levy taxes on economic activity.  The taxes are payable in the currency they issue. Fiat money is a currency without intrinsic value.

Fiat money has value because a government maintains its value or because parties engaging in exchange agree on its value. Fiat is a binding edict issued by a person in authority. It was introduced as an alternative to commodity money and representative money. Commodity money is created from a good, often a precious metal such as gold or silver, which has uses other than as a medium of exchange. Representative money is similar to fiat money but it represents a claim on a commodity which can be redeemed to a greater or lesser extent in value.