The Elgar Companion to Social Economics
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The Elgar Companion to Social Economics

Edited by John B. Davis and Wilfred Dolfsma

As this comprehensive Companion demonstrates, social economics is a dynamic and growing field that emphasizes the key role that values play in the economy and in economic life. Social economics treats the economy and economics as being embedded in the larger web of social and ethical relationships. It also regards economics and ethics as essentially connected, and adds values such as justice, fairness, dignity, well-being, freedom and equality to the standard emphasis on efficiency. The Elgar Companion to Social Economics brings together the leading contributors in the field to elucidate a wide range of recent developments across different subject areas and topics. In so doing the contributors also map the likely trends and directions of future research. This Companion will undoubtedly become a leading reference source and guide to social economics for many years to come.
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Chapter 27: Banking, Finance and Money: A Social Economics Approach

L. Randall Wray


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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