Daily Archives: December 4, 2012

By L. Randall Wray

We all know the usual approach to money, that begins with a fantasized story about barter, the search for an efficient medium of exchange, the role of the goldsmith, and then on to the gold standard, the deposit multiplier, fiat money, and monetary neutrality—at least in the long run.^[1] It provides a perspective on the nature of money, on the primary functions of money, and on rules for proper monetary management. It frames all mainstream discussions of money—whether by economists, by policymakers and by the population at large. That framing is also largely consistent with the conventional view of the economy and of society more generally. To put it the way that economists usually do, money “lubricates” the market mechanism—a good thing because the conventional view of the market, itself, is overwhelmingly positive. The market “meme” frames our view of the economy and society, too—the market is the place we go to exercise choice, to assert our individuality, to catch and bring home prey to the adoring family. The king of the market, of course is the highly vaunted, entrepreneurial small businessman (gender specific) who provisions society with useful work as well as consumption goods and services. Each productive member of society is appropriately rewarded with money which preserves the freedom to choose how to apportion his claim on output in a manner consistent with preferences. The biggest potential threat to efficient allocation of scarce resources among competing unlimited wants comes from government’s exercise of control over money—first by replacing natural, intrinsically valuable, commodity money with fiat money, second by taking away people’s hard-earned money through taxes, and third by profligate government’s uncontrollable urge to inflate away money’s value. Continue reading →