An Inquiry into the Nature of Money: An Alternative to the Functional Approach

Abstract

The paper argues that the functional approach of money does not provide a good method to study monetary history and monetary mechanisms. An alternative approach is developed and illustrated by analyzing the role of tobacco and cowry shells in past monetary systems. It is shown that any monetary system has specific properties that most students of money do not take into account when theorizing about money or analyzing its history. This leads them to miss some important points, and to see monetary systems where none exist. Hence, one can doubt some of the past research on the subject, at least until further investigation is conducted that is based, not on what we think "money" is, but on what its essential properties are. By comprehending what the main characteristics of a monetary system are, one is able to improve regulation of the system and get some insights into the financial mechanisms of sovereign governments. JEL Classification: E42

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“…Orthodox economic theory in present-day Western academic and policy circles, neoclassical economic theory, takes money as a passive commodity that acts as a medium of exchange. Critics of economic orthodoxy argue that this "commodity theory of money" is incorrect and misleading, and underpins ineffective policy and regulation (Bell, 2001;Tymoigne, 2006;Wray, 2014).…”

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“…Scholars have argued that regulators do not understand the nature of money, and therefore do not understand shadow banking sufficiently in order to regulate this (Seru, 2019; Tymoigne, 2006). In China, however, this is not the case.…”