A Financial Analysis of Monetary Systems

Part of the Levy Institute Advanced Research in Economic Policy book series (LAREP)


The functional analysis of monetary systems is currently the most popular among academics of all disciplines — ‘money is what money does’ (Walker 1878; Hicks 1967; Dalton 1965; Kemp 1956). It is used in a narrow way by most economists who focus on the function of medium of exchange. In order to avoid the problem of double coincidence of wants, a unique commodity was progressively sorted out as best for market exchanges (Jevons 1875; Menger 1892). A monetary system can be detected by checking for the presence of a medium of exchange. Einzig (1966) and Quiggin (1949) reject this narrow functional approach. In primitive societies, exchange was not done principally, or even at all, for economic reasons and so the nonexistence of a double coincidence of wants was not a problem. The broad functional approach classifies anything as monetary instrument as long as it performs all or parts of the functions attributed to monetary instruments. The distinction between ‘all-purpose money’ and ‘special-purpose money’ follows (Polanyi 1957).


Precious Metal Bank Account Financial Instrument Legal Tender French Franc 
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© Eric Tymoigne 2014

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