A Critical Review of Money, State and Market Theory

Money is the carrier of value which is created through a two-way process and is influenced by market and state. Since money carries value, all economic variables that have value can be carried or represented by money. State without market and market without state are unable to create money. Therefore, money is a phenomenon with two agents. This article, after reviewing the related literature on the nature, role and function of money, examines existing monetary views and their inability to interpret the widespread changes in the types of currencies used in economic history. It observes that there is no theoretical unity in definition, in form, in role and in the origin of money in the economy. Then, it presents a combinatorial theory with the help of value theory to cope with these monetary changes that is able to reduce the dispersion of money-related issues, and to explain more clearly money’s function, role and origin by introducing a central concept for it. The new theory combines two concurrent views regarding the creation of money which consider its origin to be either market or state. Money manifests itself in the economy in three forms; first, the state money created by the central bank, second, the endogenous money (bank money) created by the money markets, and finally, the exchange money (calculating money) which is created by the real markets. Each form has its own nature and function.