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Chapter 27: Banking, Finance and Money: A Social Economics Approach
27 Banking, ﬁnance and money: a social economics approach L. Randall Wray This chapter will brieﬂy summarize the orthodox approach to banking, ﬁnance and money, and then will point the way toward an alternative based on social economics. 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. While the orthodox approach presumes that money really does not matter (at least in the long run, when it is supposed to be ‘neutral’), the alternative stresses that money is perhaps the most important institution in an economy organized along capitalist principles. Further, rather than relegating money to a ‘thing’ that lubricates the market mechanism, a social economic perspective emphasizes social relations – credit and debt, power and sovereignty. Finally, the alternative view of banking, ﬁnance and money also leads to diﬀerent conclusions regarding the appropriate scope for monetary and ﬁscal policy. 1. The state of orthodox thinking on the subject For decades economics students were introduced to the topic of money and banking through a story about the evolution of money from the supposed earliest origins in barter and on to our present ‘ﬁat’ money. For example, Paul Samuelson presents the ‘historical states of money’ as follows: Inconvenient as barter obviously is, it represents a great step forward from a state of self-suﬃciency in which every man had to be a jack-of-all-trades and master of none . . . Nevertheless, simple barter operates under...
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