Sunday, March 11, 2012

Keynes on Metallism versus Chartalism in 1914

There is a most interesting book review, now almost forgotten, written by John Maynard Keynes and published in 1914, in which Keynes reviews both the original German edition of Ludwig von Mises’s Theorie des Geldes und der Umlaufsmittel (Theory of Money and Credit; Munich and Leipzig, 1912), and Geld und Kapital (Money and Capital; Leipzig, 1912) by the German Chartalist Friedrich Bendixen (see Keynes 1914a).

The Chartalist theory of money derived from Georg Friedrich Knapp’s Staatliche Theorie des Geldes (The State Theory of Money; original German edition 1905; English translation 1924), which has been one of the important sources of recent Chartalism or Modern Monetary Theory.

Although Keynes was not hostile to Mises, nevertheless it is clear from his view of Bendixen’s book that Keynes already repudiated the Metallist position on money and was receptive to Knapp’s Chartalism. Keynes says:
“[sc. Bendixen says that the] … old ‘metallist’ view of money is superstitious, and Dr. Bendixen trounces it with the vigour of a convert. Money is the creation of the State; it is not true to say that gold is international currency, for international contracts are never made in terms of gold, but always in terms of some national monetary unit; there is no essential or important distinction between notes and metallic money; money is the measure of value, but to regard it as having value itself is a relic of the view that the value of money is regulated by the value of the substance of which it is made, and is like confusing a theatre ticket with the performance. With the exception of the last, the only true interpretation of which is purely dialectical, these ideas are undoubtedly of the right complexion. It is probably true that the old ‘metallist’ view and the theories of regulation of note issue based on it do greatly stand in the way of currency reform, whether we are thinking of economy and elasticity or of a change in the standard; and a gospel which can be made the basis of a crusade on these lines is likely to be very useful to the world, whatever its crudities or terminology.” (Keynes 1914a: 418).
Keynes (1914b) also published in 1914 a positive review of Mitchell Innes’s 1913 essay “What is Money?” Keynes (1914b: 421) even said explicitly in this latter review that he thought that Innes’s “historical conclusions ... have, I think, much foundation.”

So Keynes the monetary reformer was already moving to the Chartalist and credit theories of money by 1914, only a few years after he had begun lecturing in economics at Cambridge university in January 1909 (for Keynes’s education and emergence as an economist, see my post here).


Bendixen, Friedrich. 1912. Geld und Kapital, Duncker & Humblot, Leipzig.

Keynes, J. M. 1914a. “Theorie des Geldes und der Umlaufsmittel. by Ludwig von Mises; Geld und Kapital. by Friedrich Bendixen” (review), Economic Journal 24.95 (Sep.): 417–419.

Keynes, J. M. 1914b. “What is Money? by A. Mitchell Innes” (review), Economic Journal 24.95 (Sep.): 419–421.

Knapp, G. F. 1905. Staatliche Theorie des Geldes, Duncker & Humblot, Leipzig.

Knapp, G. F. 1973 [1924]. The State Theory of Money (trans. H. M. Lucas and J. Bonar), Augustus M. Kelley, Clifton, NY.

Mises, L. von. 1912. Theorie des Geldes und der Umlaufsmittel, Duncker & Humblot, Munich and Leipzig.

Mitchell Innes, A. 1913. “What is Money?,” Banking Law Journal 30.5 (May): 377–408.

1 comment:

  1. Even earlier, in his first published work, Indian Currency and Finance (1913), he memorably characterizes the rupee as "a note printed on silver".