I have recently read a paper by Christine Desan that is titled Money as a legal institution. The author argues that money is a legal thing, that it is defined by laws and that the law is changed in times of crisis. I very much agree with that. Economists have been so bad at understanding money because it is not their field of comparative advantage. Anthropologists have long doubted that money arose from “coincidence of wants”, and David Graebers 5,000 year history of debt has been read by so many economists that nobody can deny anymore that the story that modern textbooks tell us is wrong. Money is a legal entity. Bill Mitchell writes about money:
Please also note that the term ‘money’ is quite difficult to pin down given that it is a social construct with embedded power relationships. For us to understand the history of money requires us to also be sociologists and anthropologists among other things to penetrate the broader relationships that govern the use of a ‘thing’ which might be called money.
… to which scholars of the law should be added, and since Mitchell kept the door open with “among other things” he might agree with me. What does this mean, money as a legal institution? I suggest that economists should open up their minds (and textbooks) to a sort of microeconomics that is not rooted in mathematics but in precise descriptions of reality. Before building a map, one has to know the terrain. It is a weak excuse to model money as a veil that is not important when all we talk about as economists in these times of crises is – money!
Legal scholars have a lot to say about power, too. Who decides what money is? Who gets to create money? Who creates credit? What if there is a bank run? Where is the line between fiscal and monetary? What is the political economy of central banking, perhaps? There are many interesting subjects to be explored once the monetarist idea of money as something controlled directly by the central bank and then multiplied by the banks has been discarded. However, the tools to analyze these questions are not of the general equilibrium, rational agent, scarcity type of tools. Perhaps economics, which I think is very ignorant about other disciplines, has to focus more on core competences in order to reinvent itself. What these are is up to the young generation of economists.