Category Archives: Guest Blogger

By A. Clayton Slawson III*

By Brian Hartley*

Modern banks are professional arbiters of financial IOUs secondary to that of the state or issuing authority. Central bank liabilities – reserves – form the most liquid and foundational instrument in the hierarchy of money, with intermediate obligations between banks ranking next, down finally to obligations issued by individuals. Banks facilitate the transfer of IOUs across and between various levels of the hierarchy, allowing transactions between individuals, extension of credit from the liquid to the illiquid, the transformation of maturities and transference of risk. Balance sheet expansion provides the liquidity necessary for increasing sophistication of the credit and payment system.

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By Lukas Kaluza*

Introduction

“Money is what we use to pay for things.” This quote from Lerner (1947, p. 313) is the simple answer to the question: “What is money?” But in order to get an answer to the question of the nature of money we have to go further into the theory and consider two different approaches: the orthodox and the heterodox approach. In the following essay the answers of both approaches to the questions of the nature of money will be discussed and after that implications for policy making will be made. Therefore, this essay will start with a short excursion in which the two different stories of the history of money will be given.

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By Ken Yamat*

What is the nature of money?

Money is a medium of exchange, a store of value, and a unit of account as described below:

In an important sense our task throughout this monograph has been to develop a theory of the nature of money. When asked “What is money?”, most people respond – quite reasonably – that money is used to buy something. This gets at money’s use as a medium of exchange, which is of course the most familiar use. If pressed further, most would also say that money is something one can hold as a store of value. Indeed, economists recognize money as the safest and most liquid store of value available, at least outside situations with high inflation, when money’s value falls rapidly. Some people will also mention the use of money to pay something down, debt, with money used as a means of payment, or means of final settlement of contractual obligations. Finally, if we ask people “How much is that worth?” – pointing to just about anything- a common response would be to evaluate with in terms of money, this time acting as the unit of account used to measure wealth, debt, prices, economic value. (Wray, 2013)

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By Marilynne Meikenhous*

The debate surrounding the nature of money is an impassioned one. Our understanding of money and the policy implementation based on our beliefs differ momentously. Have our policies reflected a true understanding of how money functions in a modern society, and have these policies worked?  In order to answer this, it is first necessary to explore what money is. This typically depends on how you think money came into existence, what money is used for, and how money functions in the modern economy. The way that one incorporates money into a discussion of macroeconomics is arguably what indicates their economic background and beliefs.

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By Andreas Lückert*

1. Introduction

Money is “what we use to pay things”. In order to be efficient it needs to be generally accepted. (Lerner, 1947) The question arises how this general acceptability gets created. The true origin of money will never be known for sure. (Wray 2005, p. 3) Still, the heterodox and the orthodox view established different explanations for the nature of money.  These theories will be explained in the following and a recommendation for policy making will be made.

2. Orthodox Approach

The orthodox approach goes along with the exogenous theory of money. It sees money as a neutral thing, which evolved out of barter and is not determined by the real economy. This paragraph explores this nature of money from the orthodox view.

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