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The Origins of Money and the Development of the Modern Financial System


  • L. Randall Wray


The origins of money and banking are explained in nearly every introduction money and banking course, but Wray proposes an alternative approach that emerges from a comparative analysis of economic institutions. Orthodox theory suggests that barter replaced self-sufficiency and increased efficiency by fostering specialization- subsequently, establishing some object as a medium of exchange permits greater efficiency. In essence, the orthodox economist espouses the view that we operate in a free market economy in which "neutral money is used primarily to facilitate exchange of real goods, undertaken by self-interested maximizers for personal gain." Institutionalists reject this argument because it emerges from the perspective of a rational economic agent facing scarce resources and unlimited wants-thus, the focus is on choice. Wray states that economic analyses must incorporate interactions between humans and nature, and that the economy is a "component of the material life process of society." Hence, the conventionalists' focus on choice should instead be directed at production and distribution. The Wray thesis suggests that money is necessarily endogenously determined: Monetary economies have not, and cannot, operate with exogenous money supply can function with a commodity reserve system, such a system is subject to periodic debt deflations. In sum, the monetarist policy prescription would be counterproductive to systemic stability and would not yield greater control of the money supply.

Suggested Citation

  • L. Randall Wray, 1993. "The Origins of Money and the Development of the Modern Financial System," Economics Working Paper Archive wp_86, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_86

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    1. Sudhir Anand and Amartya Sen, 1995. "Gender Inequality in Human Development: Theories and Measurement," Human Development Occasional Papers (1992-2007) HDOCPA-1995-01, Human Development Report Office (HDRO), United Nations Development Programme (UNDP).
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    4. Angela Hawken & Gerardo Munck, 2013. "Cross-National Indices with Gender-Differentiated Data: What Do They Measure? How Valid Are They?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 111(3), pages 801-838, May.
    5. Lekha Chakraborty, 2014. "Integrating Time in Public Policy: Empirical Description of Gender-specific Outcomes and Budgeting," Economics Working Paper Archive wp_785, Levy Economics Institute.
    6. Stephan Klasen & Dana Schüler, 2011. "Reforming the Gender-Related Development Index and the Gender Empowerment Measure: Implementing Some Specific Proposals," Feminist Economics, Taylor & Francis Journals, vol. 17(1), pages 1-30, January.
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