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On the nature of money – Vincent Huang

* From Essays in Monetary Theory and Policy

The following is from the introduction to a paper by Vincent Huang, a graduate student at the Economics Department of the University of Missouri – KC. The paper can be accessed on the New Economic Perspectives website (see source link).

The discrepancy between the orthodox (primarily neoclassical) and the heterodox (Post Keynesian, Chartalism, MMT, etc.) schools of thought rests fundamentally in their different perception in the way the capitalist economy functions.

The orthodox school depicts a barter economy in which the end purpose of production is consumption. Individuals innately engage in production because of the urge to truck and barter. Money merely facilitates the exchange of goods and services and cannot affect production decisions.

The heterodox school, however, depicts a monetary production economy in which production is always financed through money and would not take place unless more money expects to be realized through sale of goods and services.

Hence, the orthodox school asserts money neutrality (at least in the long run) since money is simply the medium of exchange.

The heterodox school rejects money neutrality since money not only finances production but also serves as its end goal. The distinction between the barter and the monetary economy, as discussed above, thus necessarily implies a very different understanding of the nature, origin, and role of money between the orthodox and the heterodox school of thought.

The purpose of this paper is, through examining the nature and origin of money in a historically grounded context, to demonstrate that the orthodox school of thought has completely mistaken the nature of money and consequently mis- interpreted the nature of the capitalist economy. Such theoretical misunderstanding is devastating because it manifests wrong policies that continually fail to address economic and social problems threatening a capitalist society. This paper also intends to shed light on alternative guiding principles behind monetary and fiscal policies.


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