What is Chartalism?
A macroeconomic theory proposing that the value of money is determined only by the actions of governments, instead of being backed by commodities such as gold. The theory describes how governments establish the creation and value of fiat money.
The term Chartalism was defined in 1905 by a German economist named Georg Friedrich Knapp, in his work called “State Theory of Money”. Knapp proposed that a government could create paper money and make it official legal tender by simply declaring it would be accepted as payment in public offices. Knapp coined the phrase chartalism based on the Latin word “charts”, which means token or ticket, and proposed that currency was a legal creation rather than an actual commodity. Knapp’s theory deviated from the theory of Mettalism, in which the value of state currency was tied directly to commodities it held or could attain.
Widely influential British economist John Maynard Keynes referenced chartalism in his 1930 work “Treatise on Money”. The theory seemed to have a major influence on Keynes’s economic theory on the role of government in the economy. The underlying theory of Chartalism is widely embraced by modern economists.
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