IDEAS home Printed from https://ideas.repec.org/p/lev/wrkpap/wp_890.html
   My bibliography  Save this paper

On the Centrality of Redemption: Linking the State and Credit Theories of Money through a Financial Approach to Money

Author

Listed:
  • Eric Tymoigne

Abstract

The paper presents a financial approach to monetary analysis that links the credit and state theories of money. A premise of the functional approach to money is that "money is what money does." In this approach, monetary and mercantile mechanics are conflated, which leads to the conclusion that unconvertible monetary instruments are worthless. The financial approach to money strictly separates the two mechanics and argues that major monetary disruptions occurred when the two were conflated. Monetary instruments have always been promissory notes. As such, their financial characteristics are central to their value and liquidity. One of the main financial requirements of any monetary instrument is that it be redeemable at any time. As long as this is the case, the fair value of an unconvertible monetary instrument is its face value. While the functional approach does not recognize the centrality of redemption, the paper shows that redemption plays a critical role in the state and credit views of money. Payments due to issuer and/or convertibility on demand are central to the possibility of par circulation. The paper shows that this has major implications for monetary analysis, both in terms of understanding monetary history and in terms of performing monetary analysis.

Suggested Citation

  • Eric Tymoigne, 2017. "On the Centrality of Redemption: Linking the State and Credit Theories of Money through a Financial Approach to Money," Economics Working Paper Archive wp_890, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_890
    as

    Download full text from publisher

    File URL: http://www.levyinstitute.org/pubs/wp_890.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. William N. Goetzmann, 2016. "Money Changes Everything: How Finance Made Civilization Possible," Economics Books, Princeton University Press, edition 1, number 10662.
    2. John F. Henry, 2004. "The Social Origins of Money: The Case of Egypt," Chapters, in: L. Randall Wray (ed.), Credit and State Theories of Money, chapter 4, Edward Elgar Publishing.
    3. Mark Setterfield (ed.), 2006. "Complexity, Endogenous Money and Macroeconomic Theory," Books, Edward Elgar Publishing, number 3552.
    4. Knapp, Georg Friedrich, 1924. "The State Theory of Money," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number knapp1924.
    5. Michel Aglietta & Pepita Ould Ahmed & Jean-François Ponsot, 2016. "La monnaie. Entre dettes et souveraineté," Post-Print halshs-01372330, HAL.
    6. Ingham, Geoffrey, 2004. "The nature of money," economic sociology. perspectives and conversations, Max Planck Institute for the Study of Societies, vol. 5(2), pages 18-28.
    7. Graziani,Augusto, 2003. "The Monetary Theory of Production," Cambridge Books, Cambridge University Press, number 9780521812115, October.
    8. Starr, Ross M, 1974. "The Price of Money in a Pure Exchange Monetary Economy with Taxation," Econometrica, Econometric Society, vol. 42(1), pages 45-54, January.
    9. Bell, Stephanie, 2001. "The Role of the State and the Hierarchy of Money," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 25(2), pages 149-163, March.
    10. L. Randall Wray, 1998. "Understanding Modern Money," Books, Edward Elgar Publishing, number 1668.
    11. Mark S. Peacock, 2006. "The origins of money in Ancient Greece: the political economy of coinage and exchange," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 30(4), pages 637-650, July.
    12. L. Randall Wray (ed.), 2004. "Credit and State Theories of Money," Books, Edward Elgar Publishing, number 3204.
    13. Goldberg, Dror, 2005. "Famous Myths of "Fiat Money"," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 957-967, October.
    14. Metcalf, William, 2012. "The Oxford Handbook of Greek and Roman Coinage," OUP Catalogue, Oxford University Press, number 9780195305746.
    15. Geoffrey W. Gardiner, 2006. "The Evolution of Creditary Structures and Controls," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-28844-7, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Reynold F. Nesiba, 2013. "Do Institutionalists and post-Keynesians share a common approach to Modern Monetary Theory (MMT)?," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 10(1), pages 44-60.
    2. Eric Tymoigne, 2014. "Monetary Mechanics: A Financial View," Economics Working Paper Archive wp_799, Levy Economics Institute.
    3. Alla Semenova & L. Randall Wray, 2015. "The Rise of Money and Class Society: The Contributions of John F. Henry," Economics Working Paper Archive wp_832, Levy Economics Institute.
    4. Jussi Ahokas, 2012. "Geographies of Monetary Economy and the European economic crisis," ERSA conference papers ersa12p437, European Regional Science Association.
    5. Alexander W. Salter & William J. Luther, 2014. "Synthesizing State and Spontaneous Order Theories of Money," Advances in Austrian Economics, in: Entangled Political Economy, volume 18, pages 161-178, Emerald Group Publishing Limited.
    6. Pavlina R. Tcherneva, 2016. "Money, Power, and Monetary Regimes," Economics Working Paper Archive wp_861, Levy Economics Institute.
    7. Zdravka Todorova, 2013. "Connecting social provisioning and functional finance in a post-Keynesian–Institutional analysis of the public sector," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 10(1), pages 61-75.
    8. Thomas Cate (ed.), 2012. "Keynes’s General Theory," Books, Edward Elgar Publishing, number 3855.
    9. Garzón Espinosa, Eduardo & Cruz Hidalgo, Esteban & Medialdea Garcia, Bibiana & Sanchez Mato, Carlos, 2023. "Money or Crypto-Gold? Problematics and Possible Worlds for Cryptocurrencies," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 76(3), pages 429-452.
    10. Ament, Joe, 2020. "An ecological monetary theory," Ecological Economics, Elsevier, vol. 171(C).
    11. John Smithin, 2013. "Credit creation, the monetary circuit and the formal validity of money," Chapters, in: Louis-Philippe Rochon & Mario Seccareccia (ed.), Monetary Economies of Production, chapter 5, pages 41-53, Edward Elgar Publishing.
    12. Umlauft, Thomas, 2018. "Is Bitcoin Money? An Economic-Historical Analysis of Money, Its Functions and Its Prerequisites," MPRA Paper 99302, University Library of Munich, Germany, revised Aug 2018.
    13. L. Randall Wray, 2012. "Keynes after 75 Years: Rethinking Money as a Public Monopoly," Chapters, in: Thomas Cate (ed.), Keynes’s General Theory, chapter 15, Edward Elgar Publishing.
    14. Lee, Frederic, 2011. "Heterodox surplus approach: production, prices, and value theory," MPRA Paper 31824, University Library of Munich, Germany.
    15. Louis-Philippe Rochon & Sergio Rossi, 2013. "Endogenous money: the evolutionary versus revolutionary views," Review of Keynesian Economics, Edward Elgar Publishing, vol. 1(2), pages 210-229, January.
    16. Eric Tymoigne, 2006. "An Inquiry into the Nature of Money: An Alternative to the Functional Approach," Economics Working Paper Archive wp_481, Levy Economics Institute.
    17. Phil Armstrong, 2020. "Can Heterodox Economics Make a Difference?," Books, Edward Elgar Publishing, number 19964.
    18. Massimo Cingolani, 2013. "Finance Capitalism: A Look at the European Financial Accounts," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(3), pages 249-290, May.
    19. Pitrou, Cyril, 2015. "Graph representation of balance sheets: from exogenous to endogenous money," MPRA Paper 63662, University Library of Munich, Germany.
    20. Sam Levey, 2021. "Modeling Monopoly Money: Government as the Source of the Price Level and Unemployment," Economics Working Paper Archive wp_992, Levy Economics Institute.

    More about this item

    Keywords

    Credit Theory of Money; State Theory of Money; Net Present Value; Monetary Systems;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lev:wrkpap:wp_890. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Elizabeth Dunn (email available below). General contact details of provider: http://www.levyinstitute.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.