MMTers Love When Governments Burn Money

 “MMT, History, and Burning Money”

This article offers a critical examination of Modern Monetary Theory’s (MMT) historical claims, particularly the assertion that governments burning paper money demonstrates the essence of money and its relationship to taxation. While the author acknowledges that governments have historically burned or destroyed money—particularly depreciated paper notes—the article challenges the chartalist assumptions underlying MMT and argues that its interpretation of history is flawed.

The article’s strength lies in its thorough historical analysis, tracing examples of money burning from Colonial America to post-Civil War currency redemption and medieval tally sticks. It points out that while MMTers, like Randall Wray, correctly note these events, their interpretation of the significance of money burning is overly simplistic and theoretically misplaced. Rather than proving MMT’s claim that money derives its value solely from state power and taxation, the historical record suggests that market-chosen monies existed before state-issued paper, and the state’s monetary interventions were reactive rather than foundational.

The critique focuses on how MMT inverts the historical sequence—claiming that the state creates money ex nihilo—while evidence shows that state-issued paper money gained conditional acceptance only when linked to real money (specie) and promises of redemption. Furthermore, the destruction of paper money by governments is interpreted not as proof of money’s nature but as a response to inflation, devaluation, and the liabilities associated with depreciated paper.

The article concludes that while MMT highlights some important truths (e.g., taxes can support a currency’s acceptance, governments can spend before taxing), its chartalist foundation is historically inaccurate and theoretically misleading.

• Historical Reality vs. MMT Claims

  • Governments did historically burn paper money (e.g., Colonial America, post-Revolution, post-Civil War).

  • The destruction of money was often due to its depreciation or redundancy, not because taxation “gives money its value.”

  • MMT’s argument oversimplifies these historical cases.

• Chartalist Assumptions

  • MMT assumes that the state, not the market, creates money and gives it value via taxation.

  • Historical examples show that money existed and had value prior to state-issued fiat paper.

  • Chartalism’s strict conditions—state-created fiat required for taxes—rarely, if ever, occurred in history.

• Inverted Historical Sequence

  • Market-chosen monies (e.g., gold, silver) preceded government-issued paper.

  • Governments inflated paper currency and enforced legal tender laws only after the fact.

  • Public trust and redemption promises, not taxes, primarily sustained paper money’s value.

• Why Governments Burned Money

  • Burning was a way to withdraw near-worthless, depreciated notes from circulation.

  • It avoided the need to redeem paper in specie (which the government often lacked).

  • It was a response to the hidden tax of inflation, which had already expropriated purchasing power.

• Critique of MMT

  • MMT selectively cites history and toggles between definitions of chartalism when convenient.

  • The argument that burning money demonstrates its “worthlessness” outside state control is a misinterpretation.

  • The theory ignores the dependence of state-issued currency on pre-existing market money and trust.

https://mises.org/mises-wire/mmters-love-when-governments-burn-money