The monetary theory of production

Abstract

This chapter explains the monetary theory of production. Lionel Robbins, former head of the economics department at the London School of Economics, famously defined his science as the one 'which studies human behaviour as a relationship between ends and scarce means which have alternative uses. This is, in the most general sense, a theory of production. It is fallacious to reason that because the motivations of capitalists are so important for the present economy they must therefore be free of all traces of a past that now seems less rational exempt from what Collingwood calls 'the Law of Primitive Survivals'. It thus makes sense to pursue what Keynes called a monetary theory of production; a theory of this kind was also sought in the work of Marx and Thorstein Veblen, among others. But we have seen that money is nothing more than IOUs; it is created whenever anybody decides to go into debt.

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