SOAS Research Online

Abstract

The recent instability in financial markets demonstrated the inadequacy of the mainstream treatment of money and the underlying production base. This has stimulated interest in the possible role of a money commodity. The fundamental function of monetary theory, an explanation of the general level of prices, is provided through only two analytical mechanisms, quantity-based valueless money or a money commodity. The quantity-based explanation is unsound by its own logic. The theoretical argument for commodity-based money, on the other hand, is analytically consistent. This theoretical superiority has little practical impact because the commodity money hypothesis is considered empirically absurd. However, a link between gold and aggregate prices in the United States since the end of World War II can be demonstrated, and this link has prima facie credibility. This credibility might motivate Marxists and other critics of mainstream economics to give serious consideration to commodity-based monetary theory.