Taxonomy of Monetary Theories

Open Access, International Journal of Pluralism and Economics Education

This article presents a structured approach for comparing monetary theories based on their primary monetary function. The proposed taxonomy clarifies and highlights the underlying assumptions of selected monetary theories and applies the derived lines of thought to historical examples. The advocated line of thought is a normative decision regarding the relative importance of the different functions. According to the store-of-value line of thought, the conservation of purchasing power is the most relevant function. The medium-of-exchange line of thought maintains a stable monetary value in the circulation of goods and services. The means-of-payment line of thought emphasizes an active role of money and the possible influence of the society on money and the economy. In contrast, the unit-of-account line of thought reduces money to a passive role, adjusting elastically to the needs of the real economy. While no taxonomy can be comprehensive enough to include any specific monetary theory, our approach explores monetary theories by asking relevant questions and contextualizing them.

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