Wray on the History of Money

By Dan Kervick

This is just a brief note to the readers of New Economic Perspectives to point them to an outstanding new working paper posted by L. Randall Wray at the website of the Levy Economics Institute of Bard College.  The paper is called “Introduction to an Alternative History of Money”.   In the abstract of the paper, Randy beautifully captures a feature of heterodox approaches to economics that distinguishes those approaches from much orthodox economic theorizing:

Heterodox economists reject the formalist methodology adopted by orthodox economists in favor of a substantivist methodology. In the formalist methodology, the economist begins with the “rational” economic agent facing scarce resources and unlimited wants. Since the formalist methodology abstracts from historical and institutional detail, it must be applicable to all human societies. Heterodoxy argues that economics has to do with a study of the institutionalized interactions among humans and between humans and nature. The economy is a component of culture; or, more specifically, of the material life process of society.  As such, substantivist economics cannot abstract from the institutions that help to shape economic processes; and the substantivist problem is not the formal one of choice, but a problem concerning production and distribution.

There is no doubt that abstraction has its purposes in science.  But so much of orthodox economic debate these days seems to get lost inside the formal models of the debaters, adding pointless epicycles to models that are fundamentally flawed from the outset, and whose inherent social and psychological unreality no number of added complications can fix.

The curves of economic theory have an attractive and almost addictive visual simplicity.  Some are very useful.  The risk, however, is that they quickly become intellectual crutches.  People addicted to the representational power of these curves can start thinking too much in terms of animated PowerPoint displays, where various actions produce automatic effects in terms of motions either of the curves or along the curves in a pure mathematical space.  And as a result they may begin to neglect observation of the real-world processes occurring among actual, organic and historically given people and institutions – the processes that the models were supposed to describe in the first place.   The human reality of MMT and other heterodox approaches is part of what attracted me to this new way of thinking in the first place – and helped break me of some of the bad mental habits burned into my brain from that old Intermediate Macro course I took in 1978.

Anyway, enjoy Randy’s paper!

5 Responses to Wray on the History of Money

  1. Just a note to say that I am 18 pages in and blown away… “This separation of producer from consumer requires (for its full development) the existence of private property and the creation of a class of propertyless workers.”

    Thank you, thank you, thank you…

  2. Your comment on the danger of reducing complex phenomena to visually appealing PowerPoint slides reminded me of this NY Times article (albeit in a different context):

    “We Have Met the Enemy and He Is PowerPoint”

  3. On page 25 A. Mitchell-Innes is quoted as saying “by buying we become debtors”, and this is then used as an argument for a claim that whenever state spends it becomes debtor.

    But what if the buyer pays using his pre-existing credit against the seller? Then it would not be true that he becomes debtor by buying.

    The state could be viewed in this way too. Oblication to pay taxes could be interpreted as that the public is indebted to the state, and state merely pays by using it’s credit agaist the public.

    As we see there are two methods of buying: either going into debt to a seller or using pre-existing credits agaist the seller. And I think the state uses the latter.

  4. Wow…and many thanks !

    This was a fascinating journey into the abstract universe of “money” and the definition of “money” that you provided”:
    “abstract unit of measure” has enabled me to be a bit more grounded in my evolving understanding of economics. I have a question about a simple “mind experiment ” that I’ve been playing with for a while. Our evolutionary ancestors, the hunter-gatherers, lived in small groups and our present day brains are pretty much a result of the evolutionary development at that stage. I suspect (and would bet on it) that they did not use “money”; and their cultural situation was probably closer to the tribal cultures that Wray mentioned in his article. Is literature or research (or conjecture) available that discusses aspects of hunter-gatherer groups and how they functioned without “money” ? I’m curious because all the recent neuroscience seems to point to the thesis that our modern brains are mainly the result of evolution to the hunter-gatherer level and that’s where our ability to function is centered.

    At any rate, thanks to Randall Wray on this article.