The Views of the Historical School

The Views of the Historical School

Money, Credit and Banking

An important deviation from the classical theory of money ap­peared among the writers of the historical school. Beginning with the work of Adam Miiller and continuing down through the Nineteenth Century, German economists denied that the value of money was related to the use value of the metal of which it was made. They believed that the value of money was an act of the state. This theory was best explained in the writings of G. F. Knapp (1842-1926) who became the outstanding exponent of "chartalism." Although in primitive societies money may have been an unconscious expedient to meet the need of exchange, in the highly organized modern community the government alone decrees what shall be the unit of currency and the value it carries. This dependence upon the state may have had a real bearing upon the currency manipulations in the Central Euro­pean states in recent years. Certainly the recent departures of all modern states from the automatic monetary controls of classical economic theory in favor of managed currency gives a certain sense of reality to chartalist ideas.