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The State Theory of Money
First published in 1095 in Germany, translated from the fourth edition and published in England in 1924, this seminal work ran counter to the classical and neo-classical theories of money. Knall defined money as a creation of the state, with no intrinsic value. This concept helped to lay the foundation for J. M. Keynes's work.
324 pages, Hardcover
First published January 1, 1895
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Displaying 1 - 4 of 4 reviews
May 23, 2021
Ways in which this is a state theory of money: He defines "money proper" as whatever the state defines an exchange rate for and makes contracts payable in and makes payments in themselves.
Ways in which this is not a state theory of money: He suggests that "money proper" likely arose from the state forcing people to pay contracts which previously prescribed a commodity medium at a specified exchange rate with state-defined money.
The "origin" of money here is more or less the same as what the commodity theorists suggest. The only important difference is that he defines money as beginning once the state has something to say about it.
There was a lot in here that really didn't seem controversial at all to a "Metallist" (as he calls them) such as myself. For example, I don't disagree at all that the state has the ability to totally separate money from its value in specie by outlawing redeemability in specie (see Nixon 1971) which he claims "is the point at which the Chartal theory most clearly differs from the Metallist theory". I also don't deny that the price of some specie is tied to how much a central authority will pay for it in some other money (specie or otherwise).
Overall, this was a very dense and difficult read. The categorization of money in the first chapter was difficult and in my humble opinion should have been done in existing German (and then translated to me in English) words to better remember the several classifications. The best thing in this book is the term "valuta" which just means 'that which money is ultimately redeemable in' (e.g. the valuta for U.S dollars was gold prior to 1971 and the valuta for digital checking accounts today are U.S. dollars). My amateur opinion is that "ultimately redeemable" (or the other many ways which people use this phrase) can be too confusing and we should revive 'valuta'.
Ways in which this is not a state theory of money: He suggests that "money proper" likely arose from the state forcing people to pay contracts which previously prescribed a commodity medium at a specified exchange rate with state-defined money.
The "origin" of money here is more or less the same as what the commodity theorists suggest. The only important difference is that he defines money as beginning once the state has something to say about it.
There was a lot in here that really didn't seem controversial at all to a "Metallist" (as he calls them) such as myself. For example, I don't disagree at all that the state has the ability to totally separate money from its value in specie by outlawing redeemability in specie (see Nixon 1971) which he claims "is the point at which the Chartal theory most clearly differs from the Metallist theory". I also don't deny that the price of some specie is tied to how much a central authority will pay for it in some other money (specie or otherwise).
Overall, this was a very dense and difficult read. The categorization of money in the first chapter was difficult and in my humble opinion should have been done in existing German (and then translated to me in English) words to better remember the several classifications. The best thing in this book is the term "valuta" which just means 'that which money is ultimately redeemable in' (e.g. the valuta for U.S dollars was gold prior to 1971 and the valuta for digital checking accounts today are U.S. dollars). My amateur opinion is that "ultimately redeemable" (or the other many ways which people use this phrase) can be too confusing and we should revive 'valuta'.
February 3, 2016
The State Theory of Money is one of the books to read if one desires to have a better understanding of money. Knapp uses complex expressions, neologisms of Greek origin, but once those are overcome, what we are left with is a theory that remains as valid today as it was at the time of its writing (1905). One of the things Knapp explains, for example, is how currency exchange rates float in relation to their relative demand and supply and not in direct relation to their gold or silver contents - this is obvious for us today, but not at the time.
Another proposition which wasn't obvious at the time and still isn't today is the argument that in the gold and silver standards money is not worth the amount of gold and silver the coins contain. Knapps calls our attention to the fact that setting a metallic standard puts a price on gold or silver, and hence we cannot affirm gold gives us the value of money. It's very simple actually - if the State says it shall accept X ounces of gold in exchange for 1 dollar, and that it shall exchange 1 dollar for X ounces of gold, the price of gold will not vary, for any seller will not sell for under 1 dollar per X ounces, and not one buyer will buy X ounces of gold for more than 1 dollar, attending to the fact they can both obtain the money or the gold they seek from the State at those prices.
Another proposition which wasn't obvious at the time and still isn't today is the argument that in the gold and silver standards money is not worth the amount of gold and silver the coins contain. Knapps calls our attention to the fact that setting a metallic standard puts a price on gold or silver, and hence we cannot affirm gold gives us the value of money. It's very simple actually - if the State says it shall accept X ounces of gold in exchange for 1 dollar, and that it shall exchange 1 dollar for X ounces of gold, the price of gold will not vary, for any seller will not sell for under 1 dollar per X ounces, and not one buyer will buy X ounces of gold for more than 1 dollar, attending to the fact they can both obtain the money or the gold they seek from the State at those prices.
August 20, 2025
(1905)
I wanted to like "State Theory of Money" after reading JM Keynes' and Richard Werner's glowing reviews of it.
However, by ch 4, not only had I failed to understand what was going on, but I also failed to understand what most of the words meant. I quickly realized I had neither the working memory nor the patience necessary to understand Mr Knapp. I googled a few of them, but it seems he found it perfectly reasonable to make up new words and expect people to know what he was talking about.
Example: on p.70 Knapp writes: "By far the most important kinds of money are specie money and autogenic paper money. Money must be first classified into hylogenic and autogenic. Then hylogenic money is classified into orthotypic and the reverse; then autogenic into metalloplatic and papyroplatic". What a knob.
See the footnote below for the INDEX OF TECHNICAL TERMS**,
I didn't feel like learning a new language not called Dothraki, so I asked chatGPT for a spoiler. From what It told me, it seems that Knapp almost stumbled upon the fruitful "Fiscal Theory of the Price Level" (Cochrane, Sargent & Wallace). However, that theory is only a subset of the real bills doctrine. Also, governmnet issued money has value because of the value of tax receivable backing it. Not because it is limited by govt, who demands it for tax, creating a demand against limited supply. You are wrong, Mr Knobb.
Asset backing (mostly collateralized IOUs) gives cheque and base money its value. Just like asset backing (including PP&E, Cash, A/R, Inventory, Investments and the unrecorded NPV of the future operatring cash flows) gives Coca Cola stock certificates their value. And asset backing (including Taxes Receivable, submarines, fighter jets, land, prisons, and prisoners) give the government's TBond its value.
When the issuer of liabilities run out of assets (as governments are doing now by giving them away), the value of the liabilities fall. When an entity (such as a central bank) holds those govt liabilities as its assets then it's liabilities (paper dollars) fall in value too. Then you get inflationary feedback since the banks' money is denominated in dollars, just like TBonds.. Why does everyone get this wrong? It's easy. Read Sage Sproul's "No Such Thing As Fiat Money".
Footnotes:
*You'll glean much more about this issue from reading Andrew McFarland Davis' 1907 book on American Colonial Currency.
Law (1705), Steuart (1767) Bosanquet (1810), MacLeod (1850s), Tooke (1845) and Fullarton (1845) had all this figured out (and much more) years before Knapp was even born. "Modern" Monetary Theory indeed, only inferior to what Law wrote 300 years ago. I need to re-read the part of Theory of Money and Credit' book (1912, "prime Mises") where he attacks poor Knapp for a good 10 pages, like he'd laced Mises' sister's Slivovitz. I can't remember what for.
ich befürchtete, dass dies die Schundarbeit eines Lutherbrut Proll sein würde, und ich hatte Recht
https://archive.org/details/in.ernet....
I wanted to like "State Theory of Money" after reading JM Keynes' and Richard Werner's glowing reviews of it.
However, by ch 4, not only had I failed to understand what was going on, but I also failed to understand what most of the words meant. I quickly realized I had neither the working memory nor the patience necessary to understand Mr Knapp. I googled a few of them, but it seems he found it perfectly reasonable to make up new words and expect people to know what he was talking about.
Example: on p.70 Knapp writes: "By far the most important kinds of money are specie money and autogenic paper money. Money must be first classified into hylogenic and autogenic. Then hylogenic money is classified into orthotypic and the reverse; then autogenic into metalloplatic and papyroplatic". What a knob.
See the footnote below for the INDEX OF TECHNICAL TERMS**,
I didn't feel like learning a new language not called Dothraki, so I asked chatGPT for a spoiler. From what It told me, it seems that Knapp almost stumbled upon the fruitful "Fiscal Theory of the Price Level" (Cochrane, Sargent & Wallace). However, that theory is only a subset of the real bills doctrine. Also, governmnet issued money has value because of the value of tax receivable backing it. Not because it is limited by govt, who demands it for tax, creating a demand against limited supply. You are wrong, Mr Knobb.
Asset backing (mostly collateralized IOUs) gives cheque and base money its value. Just like asset backing (including PP&E, Cash, A/R, Inventory, Investments and the unrecorded NPV of the future operatring cash flows) gives Coca Cola stock certificates their value. And asset backing (including Taxes Receivable, submarines, fighter jets, land, prisons, and prisoners) give the government's TBond its value.
When the issuer of liabilities run out of assets (as governments are doing now by giving them away), the value of the liabilities fall. When an entity (such as a central bank) holds those govt liabilities as its assets then it's liabilities (paper dollars) fall in value too. Then you get inflationary feedback since the banks' money is denominated in dollars, just like TBonds.. Why does everyone get this wrong? It's easy. Read Sage Sproul's "No Such Thing As Fiat Money".
Footnotes:
*You'll glean much more about this issue from reading Andrew McFarland Davis' 1907 book on American Colonial Currency.
Law (1705), Steuart (1767) Bosanquet (1810), MacLeod (1850s), Tooke (1845) and Fullarton (1845) had all this figured out (and much more) years before Knapp was even born. "Modern" Monetary Theory indeed, only inferior to what Law wrote 300 years ago. I need to re-read the part of Theory of Money and Credit' book (1912, "prime Mises") where he attacks poor Knapp for a good 10 pages, like he'd laced Mises' sister's Slivovitz. I can't remember what for.
ich befürchtete, dass dies die Schundarbeit eines Lutherbrut Proll sein würde, und ich hatte Recht
https://archive.org/details/in.ernet....
September 1, 2013
This book analyzes a period of European history, when governments switched between gold, silver and paper as their currencies. This would be an enlightening read for believers in gold as money, as history shows very similar problems for both fiat and precious metal based currencies (and even more so when international trade is taken into account). The book walks through various practicalities like, will the Treasury mint coins from gold delivered to them by private persons, are worn coins taken out of circulation, how to deal with trade balances between countries, how to prevent debasement by the current government, and others. As soon as you make gold/silver a currency by law, it acquires many of the same problems we happen to associate with the fiat currencies of today.
Displaying 1 - 4 of 4 reviews