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.

Market participants realize they can use more saleable goods as a step toward acquiring the goods they actually want for direct use. For example, you might bring surgical instruments to market, and intend to go home with a new toaster. Instead of going through the costly and time-consuming process of finding somebody who is selling a toaster and wants surgical instruments, you could more easily find somebody who wants surgical instruments and is willing to part with eggs, a more saleable good. Then you take the eggs to the person selling the toaster, and everyone lives happily ever after.

Eggs wouldn’t make the best money, so through a continuation of the process above, with trial and error and more and more people using one or two particular goods as a medium of exchange, we get money.

Why MMTers Reject Menger’s Theory

The theory is straightforward and uncontroversial, unless you are an MMTer. If you are an MMTer, you need money to be the state’s rightful plaything. You need money to be the state’s property and responsibility, not the market’s. You need to be okay with the state debasing the money or printing up more paper for the sake of expropriating resources from the private market economy.

It’s no wonder they attack Menger’s theory so vehemently.

Instead of offering an alternative theory (the only “theory” on the origins of money I can find in their literature is a collection of assertions like “money is whatever the state collects in taxes”), MMTers point to historical case studies. One of their favorites is the clay cuneiform tablets from ancient Mesopotamia. Here’s what Randall Wray has to say about them:

The clay shubati (“received”) tablets record…debts. Each tablet indicated a quantity of grain, the word shubati, the name of the person from whom received, the name of the person by whom received, the date, and the seal of the receiver.… the “case tablets” could and did circulate. A debt could be cancelled and taxes paid by delivering a tablet recording another’s debt, whereupon the case which recorded the cancelled debt could be broken to verify the debt terms.

Wray doesn’t cite any translations or interpretations of these tablets, nor does he cite any specific archeological work. He only cites a like-minded economist, A. Mitchell Innes. Innes doesn’t cite any specific historical research on the tablets either. He just asserts that “they correspond to the medieval tally and to the modern bill of exchange” and that the tablets “no doubt passed from hand to hand.”

Money in the Ancient Near East

Instead of taking Wray and Innes at their word, I decided to check out what historians and archeologists of that period actually say about the tablets and the Mesopotamian economy. Here’s what I found:

• As far as I can tell, virtually all historians of this period say that silver was used as money in pre-coinage Ancient Near East, not clay tablets. Regarding this consensus, Powell says:

Money, of course, did exist in ancient Mesopotamia.[…] Usage of terms like “money,” “currency,” “cash,” etc. by cuneiformists to describe silver is so ubiquitous in the literature of the last century and a half that, if money were not recorded in cuneiform documents, one would have to make the improbable inference that everyone who had used this term had entirely misunderstood the texts.

• Rahmstorf provides a great overview of the archaeological evidence. He also agrees with the overwhelming consensus among historians of the period that silver was money. The dominance of “hacksilver” (broken pieces of silver) is so clear in the textual and archeological record that Rahmstorf questions whether coinage can really be considered a substantial monetary innovation. Silver was weighed in most transactions pre- and post-coinage, and coins appear in otherwise similar hacksilver hoards from before coins entered the scene. Thus, the monetary unit was clearly based on a weight of silver (e.g., the shekel and the mina).

• Speaking of weight, Ialongo et al. showed that the pieces of silver in the hacksilver hoards corresponded to known standardized weights of the time and their multiples: “The results of the statistical analyses on a silver hoard from Ebla (Syria) strongly suggest that hacksilver in the Bronze Age Near East was shaped and/or fragmented in order to comply with the weight-systems that were in use in the trade networks where it circulated.”

• Leemans said the tablets remained in the possession of those who received them—they were not used to transfer debts. Bonus: some of Leemans’ translations show that the ancient Mesopotamians used silver to calculate profit.

• Taxes were not paid with the tablets, nor were they paid in silver. Taxes were paid in-kind, especially with livestock and grains. Sharlach said, “the transfers between the province and the crown were not ‘paper’ transactions…vast cargoes were in fact transported.” This means that the MMTers are doubly wrong: 1) regarding their claim that the tablets were used to pay taxes; and, 2) regarding their claim that taxes drive the demand for money. Silver was used as money but taxes were collected in-kind in the Ur III dynasty.

• In the dozens of articles I read on the clay tablets, I found no mention that the tablets were money—no mention that the tablets were exchanged at all.

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.

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President Donald Trump announced late on May 11 that he would sign an executive order which would reduce prescription drug prices in the US by 30% to 80% “almost immediately” while also raising drug prices “rise throughout the World in order to equalize and, for the first time in many years, bring FAIRNESS TO AMERICA!”

To achieve that, Trump would institute what he called a most-favored nation policy “whereby the United States will pay the same price as the Nation that pays the lowest price anywhere in the World." Healthcare costs in the US “will be reduced by numbers never even thought of before,” he said.

Trump’s Truth Social post, which was preceded by an earlier one that promised as one of "most important and impactful" statements he has ever issued, didn’t detail how the order would work. 

He also didn’t specify potential limits on the policy, such as whether it would apply only to government programs such as Medicare or Medicaid, if it would be limited to certain drugs or categories of drugs or if the White House sees a way to apply this more broadly.

Asian pharmaceutical companies fell in early Monday trading. Japanese drugmaker Chugai Pharmaceutical Co. dropped as much as 7.2%, the most in a month, with peers Daiichi Sankyo and Takeda Pharmaceuticals losing around 5%. In South Korea, SK Biopharmaceuticals Co., Celltrion Inc. and Samsung Biologics Co. all fell over 3%.

Americans pay the most in the world for medicines, fueling innovation and driving the growth of the pharmaceutical industry. Drugmakers have said revamping the system will slash revenue and stifle the development of breakthrough therapies that have the potential to lengthen and improve lives.

Trump cited the industry’s argument, but said it meant that “the ‘suckers’ of America” ended up bearing those costs “for no reason whatsoever.”

As Bloomberg notes, the US government already negotiates prices for some of the highest-cost medicines used in Medicare health insurance under the Inflation Reduction Act, which passed in 2022 under former President Joe Biden, with more slated to be added every year. The first two rounds of drug price negotiations haven’t included physician-administered drugs, but the next round might.

Billionaire hedge fund manager Bill Ackman suggested Trump might have been inspired by an idea he floated on X in March, when he said the best way to reduce US drug prices “is to make it illegal for drug companies to sell the same drugs abroad for lower prices than they sell them for here.”

In his first term, Trump proposed a Medicare pilot program for drugs with no low-cost generic competition that are given in doctor’s offices, saying he wanted to bring prices in line with countries like France and Japan where they cost dramatically less.

That plan, which would have phased in over three years, aimed to ensure Medicare paid the lowest price offered to a group of 22 nations.

The effort was struck down in federal court after drug companies challenged it, claiming the administration hadn’t properly carried out the rulemaking process. The Biden administration didn’t appeal that finding, and instead pursued legislation that led to the Inflation Reduction Act.

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