money

Money is the medium of exchange in >markets, so that the use of money is a major distinctive feature of the latter as opposed to network >transactions in general. It is a medium of >communication, as it serves to indicate objective >value in terms of a general intersubjective >standard, relative to a specific economic system. At the same time, transfer of money implies the transfer of rights embodied in its single units, so it is also being transacted. The particular content of these rights is determined by the prevailing institutional framework of money creation and money use. For example, institutional arrangements determine whether a particular money is the obligatory and conclusive means of payment. Since money is a carrier of rights, a certain stock of money is also a determinant of an actor's >capacity ("wealth"). This fact also establishes an intimate link between >time and the use of money. Because of the far-reaching implications for the scale and scope of networks in an economic system and their process features, the monetary regime is an important part of the >order of an economic system.

A defining characteristic of money is that in a given economy, money is the medium of exchange with the highest degree of fungibility into other goods with the largest number of people. Depending on the actual order of the system, monies or quasi-monies with more limited uses can exist as competing currencies. Fungibility presupposes almost universal confidence into the stability of its value. If this is seriously undermined, a particular money will be substituted by other monies or goods assuming the role of money. Therefore, the stability of the relative value of money is a major concern of modern central bank constitutions. In the international economy, a further determinant is the relative value to other currencies, which is determined on the market for foreign exchange. In both regards, current use and effects of money will depend strongly on the expectations of the holders of money about its future value and fungibility. This establishes the aforementioned link between money and time, which implies that the use of money is directly based on a particular common knowledge of the actors in an economic system.

Hence, EE puts special emphasis on the interaction of money, >institutions and >expectations. In this regard, there is a close relation with so-called Austrian economics, "post-keynesian" views and Keynesian economics that has emancipated itself from the so-called neoclassical synthesis as embodied in the famous IS/LM diagram in macroeconomics. One of the simple starting points for evolutionary analysis is to analyze the effects of changes of prices on the expectations about future prices, which implies that there is always an interpretive dimension of every kind of aggregate market signal, as the interest rate or the exchange rate: prices denominated in terms of money have a >meaning. These expectational effects trigger a stock-flow dynamics which results from the fact that changes of market prices (flows) always change the market valuation of stocks (like stocks of foreign exchange), which feed back into behavior via changing expectations about future wealth. This is the basic mechanism of self-fulfilling prophecies and "bubbles".

Another characteristic of the EE approach to money is to analyze the workings and the behavioral aspects of the financial sector in general and the banking sector in particular. On the one hand, EE integrates major results of the Behavioral Finance literature. On the other hand, in Schumpeterian lines of thought, banking and finance are regarded as a major part of the innovative process. Here, the analysis of money in general is more restricted on the role of credit in market dynamics and technological change.

As a result, the evolutionary analysis of money is close to an historical analysis of the monetary and financial aspects of economic systems, as far as they interact with dynamic change of the economy. Equilibrium macroeconomics in terms of highly aggregate markets linked via a small number of prices is deemphasized.

Basic References

A very good comparative discussion of the heterodox macroeconomic schools that mostly emphasize the role of money in the economy can be found in:
Snowdon, Brian/Vane, Howard/Wynarczyk, Peter (1994): A Modern Guide to Macroeconomics. An Introduction to Competing Schools of Thought. Cheltenham: Elgar.
An encyclopedic perspective on money is opened via the website:
On money

Semantic Field
time   order
transaction   market   communication
value   money