Money and Finance

Full applause to Prabhat Patnaik (“On Some Foundational Issues in the Theory of Money”, EPW, 15 January) for enlightening the readers about various theoretical issues associated with the long tradition of the evolution of theories of money.

In this age of “financialisation” of the economy, there is an imperative need to rethink everything about money. How to defi ne it? What are its functions? What is its relevance in an age where very soon e-money is going to make its debut? How powerful it has become to devastate economies in a very short period? I strongly believe that we have moved miles away from money – defined simply as a widely acceptable medium-of-exchange and performing unit-of-account and store-of- value – to fi nance, defined as the source of providing funds for productive and unproductive activities. It is finance that now occupies the centre place in discussions, debates and policymaking of the government. The importance of fi nancial economics is on the rise and it would be more beneficial if economists and academicians start integrating money with fi nance to understand how the combination of the two affects the functioning of economies. New theories in this direction will have to be developed, adequately accommodating new fi nancial instruments (derivatives)which are becoming a way of life for a multitude of investors and also have strong explanatory power, shaping the crises taking place in the fi nance sector and ultimately affecting the real sector.