Alternative Approaches to Money

Abstract

This Article summarizes the orthodox approach to money and then points the way toward an alternative developed by a small group of heterodox economists following in the footsteps of Georg Friedrich Knapp, A. Mitchell Innes, John Maynard Keynes, and Abba Lerner. This alternative is more consistent with the historical and anthropological record, and also borrows from law, sociology and political science. While it is conceivable that barter played a role in the multifarious origins of the institution that we call money, the main emphasis of the chartalist approach to money is on an authority’s attempt to place resources under its command. Put as simply as possible, "taxes drive oney." The sovereign’s ability to impose a liability (tithes, tribute, fees, fines, and finally taxes) in a unit of account and payable in the sovereign’s IOUs creates the money unit and "money things" that "answer to the description" (the unit in which debts are measured). The implications are important — not only for economic theory but also for policy formation — but have as yet remained largely unexplored. It will be argued that the alternative approach not only fits the historical record better, but also sheds more light on the nature of money in modern economies. It is hoped that legal scholars find this approach
more consistent with their understanding of money.