Abstract
By examining the reasons for the introduction of money into a non-money-using or ‘barter’ economy, we shall come to appreciate the nature of money, the functions it performs and the economic significance of its use. This exercise will also provide the necessary background for an examination of the characteristics of a monetary economy and a starting-point for subsequent discussion of the Keynesian Revolution and the attacks made upon it by its principal critics. Ultimately it will provide the basis for an understanding of money’s role in a broader social and political context.
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Notes and References
For a fuller account of the considerations involved in the calculation, see R. W. Clower (ed.), Readings in Monetary Theory (London: Penguin, 1969) pp. 8–11.
R. W. Clower, ‘Theoretical Foundations of Monetary Policy’, in Monetary Theory and Monetary Policy in the 1970s, ed. G. Clayton, J. C. Gilbert, R. Sedgwick (Oxford University Press, 1971) p. 20; plus the references given.
More accurately, perhaps, ‘having utility’, thus encompassing any object to which a society attributes value — for whatever reason. While, for example, in ancient Babylon, ‘exchangeable goods’ (as legally distinguished from ‘non-exchangeable goods’) consisted of commodities in common use, in other parts of the world, the earliest means of payment seems to have been ornaments or objects with a ceremonial or religious significance, including “models” of tools and implements’. See E. V. Morgan, A History of Money (Harmondsworth: Penguin, 1965) pp. 11–12.
From the seventh century BC, kings of Lydia issued coins of electrum of recognisably modern shape; but it was Croesus, king of Lydia in the sixth century BC who moved away from the use of electrum and established issues of gold and silver coins minted separately. For an account of early money and coinage, see N. Angell, The Story of Money (London: Cassell, 1930) ch. 4.
The value of the coinage in terms of the precious metal would be self-regulating if citizens possessed the right to melt (or export) and mint coin. For example, as trade fell away in a recession the excess supply of coin would cause its value to fall relative to its commodity value. The volume of coin in circulation would then fall as citizens exercised their right to melt or export. Conversely, as trade expanded the relative scarcity of coin would cause its value to rise relative to its commodity value so that citizens would take metal to the mint. See R. F. Harrod, Money (London: Macmillan, 1969) pp. 9–13.
See C. A. E. Goodhart, Money, Information and Uncertainty (London: Macmillan, 1975) pp. 9–13, on the various state abuses of the coinage and the checks that operated to restrain them.
Using this term in the sense in which it is used by G. L. S. Shackle in G. Clayton et al., Monetary Theory and Monetary Policy in the 1970s (London: Oxford University Press, 1971) p. 32; and by Goodhart, Money, Information and Uncertainty, pp. 2–3. The further qualification, generalised means of payment, might be added, so as to exclude certain specialised means of payment (peppercorn rents, royal tributes or, in primitive societies, the bride price) which do not function as general media of exchange.
See C. A. E. Goodhart, ‘The Role, Functions and Definition of Money’, in G. C. Harcourt (ed.), The Microeconomic Foundations of Macroeconomics (London: Macmillan, 1977) p. 206.
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© 1987 Gordon A. Fletcher
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Fletcher, G.A. (1987). The Institution of Money: An Introduction. In: The Keynesian Revolution and its Critics. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-08736-5_1
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