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Introduction to an Alternative History of Money

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  • L. Randall Wray

Abstract

This paper integrates the various strands of an alternative, heterodox view on the origins of money and the development of the modern financial system in a manner that is consistent with the findings of historians and anthropologists. As is well known, the orthodox story of money's origins and evolution begins with the creation of a medium of exchange to reduce the costs of barter. To be sure, the history of money is "lost in the mists of time," as money's invention probably predates writing. Further, the history of money is contentious. And, finally, even orthodox economists would reject the Robinson Crusoe story and the evolution from a commodity money through to modern fiat money as historically accurate. Rather, the story told about the origins and evolution of money is designed to shed light on the "nature" of money. The orthodox story draws attention to money as a transactions-cost-minimizing medium of exchange. Heterodox economists reject the formalist methodology adopted by orthodox economists in favor of a substantivist methodology. In the formalist methodology, the economist begins with the "rational" economic agent facing scarce resources and unlimited wants. Since the formalist methodology abstracts from historical and institutional detail, it must be applicable to all human societies. Heterodoxy argues that economics has to do with a study of the institutionalized interactions among humans and between humans and nature. The economy is a component of culture; or, more specifically, of the material life process of society. As such, substantivist economics cannot abstract from the institutions that help to shape economic processes; and the substantivist problem is not the formal one of choice, but a problem concerning production and distribution. A powerful critique of the orthodox story regarding money can be developed using the findings of comparative anthropology, comparative history, and comparative economics. Given the embedded nature of economic phenomenon in prior societies, an understanding of what money is and what it does in capitalist societies is essential to this approach. This can then be contrasted with the functioning of precapitalist societies in order to allow identification of which types of precapitalist societies would use money and what money would be used for in these societies. This understanding is essential for informed speculation on the origins of money. The comparative approach used by heterodox economists begins with an understanding of the role money plays in capitalist economies, which shares essential features with analyses developed by a wide range of Institutionalist, Keynesian, Post Keynesian, and Marxist macroeconomists. This paper uses the understanding developed by comparative anthropology and comparative history of precapitalist societies in order to logically reconstruct the origins of money.

Suggested Citation

  • L. Randall Wray, 2012. "Introduction to an Alternative History of Money," Economics Working Paper Archive wp_717, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_717
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    File URL: http://www.levyinstitute.org/pubs/wp_717.pdf
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    References listed on IDEAS

    as
    1. Perry Mehrling, 2000. "Modern Money: Fiat or Credit?," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 22(3), pages 397-406, March.
    2. Stephanie Bell & John Henry & L Randall Wray, 2004. "A Chartalist Critique of John Locke's Theory of Property, Accumulation, and Money: or, is it Moral to Trade Your Nuts for Gold?," Review of Social Economy, Taylor & Francis Journals, pages 51-65.
    3. L. R. Wray, 1990. "Money and Credit in Capitalist Economies," Books, Edward Elgar Publishing, number 474, September.
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    More about this item

    Keywords

    Origins of Money; Evolution of Financial System; Substantivist Methodology; Comparative History; Nature of Money;

    JEL classification:

    • B5 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches
    • B25 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Historical; Institutional; Evolutionary; Austrian; Stockholm School
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • N01 - Economic History - - General - - - Development of the Discipline: Historiographical; Sources and Methods
    • N2 - Economic History - - Financial Markets and Institutions
    • P1 - Economic Systems - - Capitalist Systems

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