MMT poses two propositions: 1) that money originates according to the theory of chartalism, that is, money is essentially created and regulated by the state; and, 2) that only “monetary sovereigns” can employ MMT policies successfully. MMT’s favorite example of a “monetary sovereign” is the modern United States. (Both of these points are crucial for MMT, but their definitions and explanations are not within the scope of this article).

The problem here for MMT is that the monetary history of the United States belies chartalism. Rather, the evidence from the monetary history of the United States demonstrates evidence for commodity monies that emerged through barter-exchange on the free market, especially silver and gold.

The general tone of MMT writers toward the theory that money emerged through tradable commodities through barter-exchange is generally dismissive, implies fictionality, and even suggests that it is against historical evidence. Barter leading to a generally-accepted medium of exchange is commonly treated as an unjustified myth (cf. Graeber). ….

Far from matching chartalism, gold (and other goods) already existed as commodity-money in a context of multiple commodity monies, which emerged through barter on a free market. The very first paper money scheme of the Massachusetts government only worked because of this fact. Massachusetts had failed in a yearly plunder expedition of Quebec and was at a loss as to how to pay the soldiers involved. After failing to procure a loan of £3,000–£4,000 from Boston merchants, the Massachusetts government decided in December of 1690 to print £7,000 in paper notes and to use them to pay the soldiers. What Rothbard writes next has particular importance for MMT’s chartalist theory of money,

Suspecting that the public would not accept irredeemable paper, the government made a twofold pledge when it issued the notes: that it would redeem them in gold or silver out of tax revenue in a few years and that absolutely no further paper notes would be issued. Characteristically, however, both parts of the pledge went quickly by the board: The issue limit disappeared in a few months, and all the bills continued unredeemed for nearly 40 years. As early as February 1691, the Massachusetts government proclaimed that its issue had fallen “far short” and so it proceeded to emit £40,000 of new money to repay all of its outstanding debt, again pledging falsely that this would be the absolute final note issue. (emphasis added)

The Massachusetts government expected that the public would not accept fiat paper money, even if it threatened to tax them in that paper money, if it was not eventually redeemable in gold or silver (i.e., true money-substitutes, not fiat). This goes against chartalism. In this case, gold and silver were already money prior to the interventions of any government. In fact, the only way governments could gain widespread acceptance of their paper money-substitutes was because there was already a preexisting link established between the paper and the commodity-money. This is the opposite of chartalism, wherein people do not have money before the state creates, issues it, and taxes in it.

Following this, Massachusetts realized that such an increase in the money supply—plus a decrease in the demand for paper because of lack of confidence that it would be redeemed in specie—led to a rapid depreciation of the fiat paper money relative to gold and silver, also driving specie out of circulation. Even when the Massachusetts government attempted to legally require that the paper notes be treated on par with gold and silver with compulsory par and legal tender laws, this did not succeed. Not only does this history not match what MMT requires to be the case for the theory, it also demonstrates that governments neither create money nor can they impose money on people and create demand for it. Governments, however, intervene in already-existing monies.