What is money?

from Tony Lawson and real-world economics review issue no. 101

What is money?  Two sorts of answer to this question can be found in the modern literature.  One locates money’s nature in the organising structure of human communities, the other in intrinsic properties of particular (money) items (like commodities, debts, precious metals and so on). If accounts of money that draw on social positioning theory are instances of the former, a currently very popular and seemingly increasingly influential version of the latter takes the form of modern money theory (MMT). Notably, however, whilst contributors to social positioning theory have regularly concerned themselves with elaborating explicitly a conception of money’s nature, proponents of MMT rarely address the matter explicitly; mostly the notions entertained must be inferred from monetary assessments and policy proposals and the like.

An exception to the latter, though, is provided by the writings of Randall Wray, a central contributor to MMT; and Wray (2022) has produced a new book on money in which the topic is again addressed head on. As Wray observes it is difficult to have confidence that claims about monetary policy are coherent if we do not first understand the nature of what is being talked about. I agree with Wray on this, albeit defending a different conception drawing on social positioning theory.

Here I take the publication of Wray’s new book as affording an opportunity to contrast (I intend constructively) the two accounts of money in question. This, I stress, is not a review of the book; Wray is concerned there with all aspects of MMT’s theorising and deals with money’s nature mostly in its first chapter. My concern, in contrast, is not even with MMT per se but with understanding the nature of money. But to this end it is, I believe, informative and useful for progress to identify the conception of money’s nature presupposed by MMT proponents and to contrast it with another prima facie very different conception that appears to be sufficiently explanatorily adequate to serve as a relevant comparator.

To anticipate the argument, although the term money is not always used consistently by proponents of MMT, the dominant and essential claim is that money is debt/credit; the credit theory of money is accepted. For those working within social positioning theory, in contrast, money is never debt per se and debt may not figure in money constitution at all. Briefly put, whereas for proponents of MMT the involvement of debt is both necessary and sufficient for money constitution, for proponents of social positioning theory its involvement is neither. Perhaps somewhat surprisingly, however, it turns out that, despite these differences, MMT’s main monetary assessments and policy proposals, if correct at all, remain so even if, in place of the credit theory of money, MMT rested instead on the sort of account of money defended by contributors to social positioning theory. In other words, although MMT’s policy arguments make use of the credit theory of money they do not depend on the latter theory essentially.

Read more: http://www.paecon.net/PAEReview/issue101/Lawson101.pdf