Pragmatic Pluralism 12: Money

Key insights and ideas for thirteen core topics in economics, organised by selecting the most relevant theoretical approaches per topic and contrasting them with each other.

Pragmatic Pluralism

This chapter provides a map through the complex jungle of economic theories. There are many different theoretical approaches, and each aspect of the economy has been analysed by a number of different ones. However, it is neither feasible nor productive for students to engage with every possible angle for every topic. Hence, the chapters on different topics, together with Building Block 8: Economic Theories, sets out an alternative approach: pragmatic pluralism. Rather than pursuing the extreme of either only focusing on one approach, or including every possible strand of thought for every topic, we propose a pragmatic middle ground: teaching a select number of approaches for each topic. In this way, it is possible to introduce students to the variety and diversity of economic thinking, whilst still having enough time and space to properly discuss each of the insights in detail with them.



Money rules the world, or at least it often seems to. We all use it every day, so we often assume that we know it very well. But what is money in the first place? This seemingly easy question has triggered countless debates for many centuries. At the core of these debates is whether money is something purely technical and instrumental, or whether it fundamentally shapes, and is shaped, by social and power relationships. Another key insight is that cultural practices influenced how we see and use money.

Main opposing perspectives

■ Post-Keynesian economics: Credit theory of money

■ Austrian school: Commodity theory of money

Main complementary perspective

□ Cultural approach: Earmarking money

Additional perspectives and insights

+ Historical school: State theory of money

Main opposing perspectives: Post-Keynesian economics and the Austrian school

The two main contrasting views on money are the credit and commodity theories. The former sees money as a fundamentally social arrangement of debt and credit, while the latter views money as a purely instrumental object that can act as a means of exchange. 

The commodity view, also called metallism, was first proposed by Aristotle and is further developed by classical, Austrian and neoclassical economists. The commodity approach argues that money spontaneously originated to replace barter as it is more efficient to use money as a medium of exchange. In this perspective, money is neutral and has no effect on the real economy (at least in the long run). This idea of seeing money as a veil is often referred to as the classical dichotomy.

The credit view, first put forward by Plato and further developed by post-Keynesian, as well as Schumpeterian, economists, instead views the real and monetary economy as fundamentally interconnected, also in the long run. Money in this perspective is understood to have originated from social obligations in the form of debt and credit. Most recent historical and anthropological evidence tends to support this view of the origins of money.

Main complementary perspective: Cultural approach

The cultural approach investigates how historically situated understandings and norms related to money evolve and influence its role in society. In this perspective, money is not something impersonal, homogenous, objective or purely quantitative. In fact, money has highly personal, heterogenous and subjective meanings for people. Cultural practices, rules and habits around money are therefore of great importance. Official money may be legally or financially entirely uniform, but people will create special monies to mark off different activities and social relations. This practice is called earmarking as people designate certain monies for particular purposes. 

Within behavioural economics, this practice is referred to as mental accounting and is often understood as irrational behaviour. They argue earmarking money is irrational because it does not follow the rational man, as described by neoclassical economics, which pools all money. From this perspective, the practice of earmarking money thus leads to inconsistent choices because of different monies, or mental accounts

Additional perspectives and insights

There is also another theory of money, which originates from the historical school, which sees money as being created and controlled by governments who can issue their currency and require citizens to pay taxes in them. This theory is known by various names, such as the state theory of money, the theory of tax-driven money, and chartalism. The credit and state theory overlap as they both see money as a social claim to abstract value. The credit theory, however, focuses more on the role of finance, while state theory pays more attention to the role of government. 

The two perspectives are also often combined as, for example, recently has been done by modern monetary theorists. The debate between the commodity view on the one hand, and credit and state views on the other, has returned many times in history, such as during the Methodenstreit between Austrian and historical economists at the end of the 19th century, between neoclassical and Keynesian economists in the 1930s, and more recently between (monetarist) neoclassical and modern monetary economists.

Teaching Materials

Chapters & Papers: 

  • Economy Studies Essential Lecture: The Practice of Central Banking with ECB Director Ulrich Bindseil by the Centre for Economy Studies, from 2022. This free open access teaching pack is designed for 90-minute (online or offline) sessions that can be added to existing courses.
  • Capitalism: Competition, Conflict, Crises by Anwar Shaikh, from 2016, chapters 5 & 15. This impressive and extensive book compares multiple perspectives on many traditional economic topics including money, prices and inflation.
  • Introducing a New Economics by Jack Reardon, Maria A. Madi, and Molly S. Cato, from 2017, chapter 8. This ground-breaking textbook introduces money and weaves together pluralist theory and real-world knowledge.
  • Economics After The Crisis by Irene van Staveren, from 2015, chapter 11. This well-written textbook sets out the neoclassical, post-Keynesian, social economic and institutional perspectives on money.
  • The Economy by The CORE Team, from 2017, chapters 10 & 15. This successful textbook provides an introduction into mainstream ideas and empirical findings on money, credit, inflation and monetary policy. 
  • Principles of Economics in Context by Jonathan Harris, Julie A. Nelson and Neva Goodwin, most recent edition from 2020, chapters 26 & 27. This useful textbook, which pays particular attention to social and environmental challenges, devotes two chapters to money, banking and monetary policy.
  • The Routledge Handbook of Heterodox Economics: Theorizing, Analyzing, and Transforming Capitalism by Tae-Hee Jo, Lynne Chester, and Carlo D’Ippoliti, from 2017, chapters 5, 7, 17, 18 & 19. This broad and diverse book sets out a variety of theories on monetary theories, value, money, and banking.
  • Macroeconomics by William Mitchell, L. Randall Wray, Martin Watts, from 2019, chapters 9 & 10. This ground-breaking and much-discussed textbook written by three leaders of Modern Monetary Theory (MMT), introduces students to the different theories of money and currencies.
  • The Handbook of Economic Sociology by Neil J. Smelser and Richard Swedberg, from 2005, chapter 16. This extensive and yet accessible book for non-sociologists, provides an impressive and useful overview of the field of economic sociology, including a chapter on the sociology of money and credit.
  • Money Creation in the Modern Economy by Michael McLeay, Amar Radia and Ryland Thomas, from 2014. This article, by the Bank of England, helps students understand how money is created and debunks some popular misconceptions.


  • Where Does Money Come From? by Josh Ryan-Collins, Tony Greenham, Richard Werner, and Andrew Jackson, from 2011. This accessible book introduces students to different ideas about money and helps students understand recent developments and the technical workings of the monetary system.
  • A Handbook of Alternative Monetary Economics by Philip Arestis and Malcolm Sawyer, from 2006. This useful collection of essays introduces students to various different monetary theories, from Marx and Keynes their theories of money and credit to Minsky’s financial instability hypothesis and theories about the endogeneity of money.
  • The Social Life of Money by Nigel Dodd, from 2014. This accessible book, written by a leading sociologist, introduces students to the origins of money, its relation to capital and debt, and a variety of ideas on the social, cultural and political dynamics related to money. 
  • The Social Meaning of Money by Viviana Zelizer, from 1994. This influential book looks at money from a cultural lens, showing how people earmark money and how meaning making processes shape monetary behaviour. 
  • Debt: The First 5000 Years by David Graeber, from 2011. This bestseller explores the history and anthropology of money and debt, emphasizing its interaction with broader social institutions.
  • Money and Government: A Challenge to Mainstream Economics by Robert Skidelsky, from 2019. This useful book introduces students to the key ideas throughout history up to today on macroeconomics, money and the government.
  • The Nature of Money by Geoffrey Ingham, from 2004. This book provides an overview of different theories about the fundamental nature and working of money and credit in the economy. 
  • Concepts of Money by Geoffrey Ingham, from 2005. This book is a collection of classic essays on money and includes chapters by Austrian, Marxian, Keynesian and cultural economists and scholars. 
  • Money (The Art of Living) by Eric Lonergan, from 2009. This accessible book, written by a hedge fund manager, helps students what money is and how it functions in today’s economy.
  • The Economics of Central Banking by Livio Stracca, from 2018. This book introduces students to how central banking works and discusses key questions and debates related to the dominant mainstream models, the zero lower bound, financial stability, globalization and digitalization.
  • Marxist Monetary Theory: Collected Papers by Costas Lapavitsas, from 2016. This book introduces students to Marxian thinking about money and monetary policy.
  • Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth by Wynne Godley and Marc Lavoie, from 2006. This book, written by two key post Keynesian economists, introduces students to different theories and models of money and monetary dynamics.