Money, Banks and Finance in Economic Thought

The relations between money and rationality in the history of economics

Avtonomov Vladimir Avtonomov, National Research University Higher School of Economics

The homogeneity and infinity of money influenced human mind and psyche in two main ways. On the one hand it allows human beings to evaluate and compare goods, inputs and outputs of every action. This means that money is a major factor of economic rationality. On the other hand the same quality of money allows it to perform the function of storage and accumulation of wealth, and accordingly the symbol of power. This opens the door for psychological phenomena which can’t be easily reconcilable with many notions of rationality. Money easily outgrows the role of means and becomes the end in itself. Already Aristotle knew this phenomenon quite well and condemned it under the name of chrematistics. But of course this motive became much more important after the “Great Transformation” when the market penetrated nearly every sphere of economic activity. The classical political economy established between goods and money the relations of essence and surface. Money was considered as a veil through which shrewd economists could see the essence of economic activity. The monetary and financial thought was considered a special discipline outside political economy. For Marx a capitalist as the personification of capital is the principal subject of Marx’s economic theory. This means that capitalists are rational by definition. But the emotional side of people’s relation to money is also explored by Marx when he is dealing with business cycles. The marginal revolution changed a lot in economics but not the concept of money as the veil. The rationality of economic man increased radically turning into maximization of utility, but money didn’t play any role here. A special treatment was given to the subject in question by the representatives of the Younger historical school, who combined economic and sociological approaches . Max Weber indicated a special type of rationality - Zweckrationalität which is especially characteristic for capitalism.


Keywords: money, Classical political economy, Marx, marginalism, Younger Historical school, Keynes, efficient markets, behavioral finance

Paper file