Unresolved Questions in Monetary Theory: A Critical Review

Abstract

Clower has made a sweeping accusation: ‘The literature of monetary theory overlaps or verges on virtually every other branch of economic analysis; yet it does not contain a single coherent characterisation of … [either a] money commodity … [or a] money economy’ (1969, p. 7). Though they attracted the attention of Aristotle (and doubtless others before him) and have left a voluminous literature since, the basic questions of monetary theory remain unanswered: What is money? What causes money to become established? What assets are likely to be used as money, and what causes them to fall into disuse? What are the private and social costs and benefits of the existence of money? What are the effects of changes in the quantity of money and how much control does or ought society exercise over the money supply?

The author wishes to thank the participants in the Economic Anthropology Seminar on Means of Payment at University College London for their comments and suggestions, especially Mary Douglas, Gerald Cohen, Morris Perlman and Charles Goodhart. The comments of Yoram Barzel, Thomas Rymes, and members of the Money Study Group are also gratefully acknowledged. Responsibility for the outcome is entirely the author’s.