Academic journal article Review of Social Economy

Money Is a Social Relation

Academic journal article Review of Social Economy

Money Is a Social Relation

Article excerpt


There is no denying that views on money are as difficult to describe as are shifting clouds.

(Schumpeter 1994 (1954): 289)(1)

Money is a puzzle. The standard answer to the question of what is money derives from the late nineteenth-century functionalist account: money is what money does. Conventionally, it is a measure of value (or unit of account); a medium of exchange; a standard of deferred payment; and a store of value. However, there is, in fact, wide and at times quite vigorous disagreement as to what money does and which are the most important of the functions. Does the "thing" have to perform all the functions in order to be money? Is "credit" money? And so on. Further investigation reveals a quite surprising paradox: Money is one of the most important pieces of "social technology" ever developed, but as an object of study in its own right it is neglected by the dominant or mainstream traditions not only in modern economics but also in sociology.

Surveying the economic literature on the nature and functions of money and looking at the more prominent recent disputes on the "behavior" of money, one is struck by the extent to which modern neoclassical economics remains dominated by the conceptual apparatus of the "theoretical" school of economics that triumphed in the Methodenstreit (conflict over methods) around the turn of the century. At this juncture, historical and sociological perspectives on the "economic" were expunged from the core of the discipline (see for example: Schumpeter 1994 (1954); Machlup 1978; Swedberg 1987). Indeed, the most mathematically sophisticated and therefore most revered theories in neoclassical economics - broadly speaking, neo-Walrasian general equilibrium theories - have had great difficulty in actually finding a place for money in their schemes. "The most serious challenge that the existence of money poses to the theorist is this: the best model of the economy cannot find room for it." (Hahn 1982: 1). In these abstract models, money can, at best, only have the role of a pregiven numeraire - an accounting device in what is, essentially, a simple barter economy. A closely related approach in the broad neoclassical school has been to look on money as a rather special "commodity," but one which, like all other commodities, must possess some utility for the rational maximizing individual. (As we shall see, this basis for money has proved difficult to demonstrate with this methodological framework.) In general, money in mainstream neo-classicism money is, analytically, merely a "veil" or a neutral "lubricant" in a model of the economy, which is seen as comprising "real" factors (Schumpeter 1994 (1954): 227).

I shall argue that the difficulty in accounting for the existence of money and its role in actually existing economic systems is the result of the absence of anything resembling an adequate specification of its social structural conditions of existence. In "critical realism's" terms, mainstream economics does not possess an adequate ontological theory of money (Lawson 1994). These comments apply mainly to neoclassical microeconomics. But modern macroeconomics fares little better, largely because it too proceeds from neoclassical rational choice assumptions, and, furthermore, conceptualizes money simply as one of the statistically related aggregate economic "variables." (See Lawson's "critical realism" perspective on economic methodology [Lawson 1995]). However, the initial partial break with economic "classicism" in the first part of the century - most notably by Keynes - was, to some extent at least, an attempt to make sense of new, or more widespread forms of bank and state credit money in which, to some at any rate, the "social" basis of money was blatantly obvious. Over the past few years, a distinctive "post-Keynesian" macroeconomic school of monetary economics has been developed which, in opposition to neoclassicism, has taken up this aspect of Keynes's work and focuses on "credit-money" (Wray 1990; Smithin 1994; Rogers 1989; Moore, 1988). …

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