Proponents of Modern Monetary Theory (MMT) think that money is a “creature of the state.” They say that money is whatever the state says it is, and that this is instituted primarily through taxation. For them, money is “that which [the state] accepts at public pay offices (mainly, in payment of taxes).”

MMTers dispute the Mengerian theory of the origins of money, saying that it “is based on false a-historical premises.” Carl Menger made the commonsense claim that before money, there must have been barter. In barter, people trade goods for direct use—they don’t use any good as a “bridge” or “medium” to get a different good that they actually want. You can imagine that getting what you want from the market could be very difficult. You have to find somebody who has what you want and, simultaneously, who wants what you have. This condition for voluntary exchange is called the “double coincidence of wants,” and it’s a severe constraint for direct exchange markets.

Menger posited that market participants in such a situation would notice that some goods are more “saleable” than others. You can buy corn or cotton and then resell it quickly for a minimal (or no) loss. But for other goods, like surgical instruments, it might take a long time to find a buyer—if you tried to sell surgical instruments quickly, you’d probably have to settle for a much lower price. …

In short, the historical evidence vindicates Menger and vitiates the MMTers. The clay tablets were not an early fiat money. They were receipts that overwhelmingly showed people using silver as money—a commodity with non-monetary uses—just as we would expect based on Menger’s theory.