Synthesizing State and Spontaneous Order Theories of Money

Abstract:     
What role does government play in determining the medium of exchange? Economists weighing in on the issue typically espouse one of two views. State theorists credit government with the emergence and continued acceptance of commonly accepted media of exchange. In contrast, spontaneous order theorists find little need for government, maintaining that money emerges and continues to circulate as a result of a decentralized market process. History suggests a more subtle theory is required. We provide a generalized theory of the emergence and perpetuation of money, informed by both approaches and consistent with recent theoretical and empirical advances in the literature.

Number of Pages in PDF File: 23

Keywords: chartalism, Knapp, medium of exchange, Menger, money, search, spontaneous order, state theory of money, unit of account

JEL Classification: B53, E41, E42

working papers series