Monetary Institutionalism Against the State

An institutional approach in monetary political economy means understanding that money and its antecedents are shaped by institutional arrangements. Looking back, we see the Fei of Yapp and Sumerian credit systems, where money was not known, and instead claims were made via credit. Social relations were a significant element of these monetary systems, making institutional characteristics the lynchpin of credit and money. This means that this approach is better compared to the other well-known theory, the barter myth and the double coincidence of wants, as it is grounded in historical evidence as shown by Graeber and Martin. However what must be kept in mind is how institutions are defined, and their centrality to certain power relations in relation to monetary structures.

Taking on the last point of how we define institutions, the definition given today is that states are the main monetary institution. We see this with the concept of primordial debt, where debt in the form of taxes is the price we pay for society[1] (of which there “is no actual proof that money emerged in this way”[2]). This is interesting, but hardly conclusive. It takes an a posteriori position, back tracking monetary arrangements to seemingly justify state control of money. It can be seen with the story of the Bank of England giving a loan of ¬£1,200,000 to the king and gaining the sole right of issue. However, this occurred in the 17th century, and cannot explain previous arrangements. For example, were the Fei state-based money, or the Sumerian credit system? Can the city-states of Sumer be called states? Their monetary arrangements were wrapped up in the religious-temple bureaucracies, not in modern state-individual relations. And what of Bitcoin and other cryptocurrencies seen today? The state doesn’t control these.

Rather, I see the state as an expropriator and destroyer of institutions. It expropriates social relations for the privilege of vested interests. Tucker noted this with his idea of the credit monopoly. By the state restricting credit to certain groups and interests, entry barriers are created in banking and the general market which benefits established banks and the interests of capital. Thus its status as an institution I believe is questionable, both in terms of who it serves and its relevance historically and in the modern economy.

Keynes noted there were two institutions that encompassed money, “state or community”[3]. Community is the focus here, as it provides a different institutional perspective that goes against the state-based view. The concept of community is that of genuine social relations such as trust, with ground-up governance. As Graeber notes, in a community “pretty much anything could function as money, provided everyone knew there was someone willing to accept it to cancel out a debt”[4]. Carson further shows this, noting “currency is issued by the buyer by the very act of buying, and it’s backed by the goods and services of the seller” and “money is simply an accounting system for tracking the balance between buyers and sellers over time”[5]. However, a criticism of this view is that this only allows for community economies, and that larger economies of scale require larger institutions i.e. the state. The Irish example noted by Martin[6] seems to counter this. The closing down of banks in Ireland in 1970 for six months did not impede economic growth, as credit arrangements through the use of cheques developed that actually maintained economic growth at the national level.

However, even accepting this criticism, Keynes’ other radical insight was that of endogenous money creation, or that banks are the major creators of money through loans and deposits. As McKay stated to me in correspondence, it is seen among Post-Keynesians “that commercial banks essentially control issuance viz. volume, whereas govt / CB controls ‘price’ of money”[7]. What I’m suggesting is that if we take the insights of institutional monetary theory, as posited by Keynes, we see institutions as fluid and even intangible, as in the Irish case, and the state is not the epitomical institution.

With this evidence, the institutional approach is the most concise and superior to the other main theory, the barter myth. This economistic view is based on erroneous history, such as Smith’s theorisations of cod being used as money in Newfoundland, which leads to the absurdity of fishermen catching cod being paid in cod. The institutional approach is actually historical, with examples ranging from Yapp to Sumer and even to stateless monies, such as the Irish example and credit clearing systems as mentioned by Carson. The other issue with the barter theory is mentioned by Ingham, that being the neutral veil[8]. This position ignores the social relations and power dynamics that play out in money, and the way money is used to privilege some and impoverish others, with the credit monopoly and the maintenance of what Carson calls the cash nexus, with all relations being put through monetary relations and other relations being restricted. However, if we see the state as an institution that creates money as unquestionable, as some institutional theorists do, we ignore power relations and monetary relations in diverse contexts.

The institutional approach has relevance today, with continued slow economic growth and the commodification of debt within the modern economy. There’s the stagnation of real wages in the US, with dollar manipulation by the US government and Federal Reserve playing a major role. Sites of resistance are developing in Greece and on the internet, with state-based currencies being rejected in favour of community and market alternatives. The institutional approach allows us to understand these systems as fluid reactions against financialisation and commodification and in favour of restoring the social relations of credit and money.


Carson, K (2010). The Homebrew Industrial Revolution. United States: BookSurge.

Graeber, D (2011). Debt: The First 5,000 Years. New York: Melville House Publishing.

Ingham, G (2004). The Nature of Money. Cambridge: Polity Press.

Macesich, G (2000). Issues in Money and Banking. Westport: Praeger Publishers.

Martin, F (2013). Money: The Unauthorised Biography. London: Bodley Head.

McKay, C. @DerorCurrency. Post-Keynesian Free Banking. 28th Oct 2015.

[1] Graeber, D. 2011, 58

[2] Graeber, D. 2011, 59

[3] Macesich, G. 2000, 10

[4] Graeber, D. 2011, 74

[5] Carson, K. 2010, 277-278

[6] Martin, F. 2013

[7] McKay, C. 2015

[8] Ingham, G. 2004


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