Martin Shubik

Document Type

Discussion Paper

Publication Date


CFDP Number


CFDP Revision Date

March 1, 2018

CFDP Pages


Journal of Economic Literature (JEL) Code(s)

C70, D21


Money is a mystery and financial institutions are often regarded as guardians and promoters of the mystery. These sketches are designed to help any reader interested in, but not technically trained in economics, understand markets, money, credit and the evolution of a mass market system set in the rich context of its political environment and society. We all want a good society. What is a good society is given by our joint vision, mutual respect and social concern but the implementation of the vision calls for the use and understanding of money, markets and finance. The efficient functioning of a dynamic economy calls for the presence of money and financial institutions. The great variety of financial institutions in any advanced economy requires an understanding of what the whole looks like. Verbal description provides an overarching view of the mixture of history, law, philosophy, custom, habit, and political structure that supplies the background for the functioning of the economy. This has been vividly illustrated by Adam Smith, his teacher the Reverend Francis Hutcheson and his close friend David Hume. There are two different but highly allied themes covered here. The first explains the worth of economic theory and its importance while connecting it with the world of politics in which the economy dwells. The second is the application of economic thought to the operating problems of every society. The first theme is covered in the first nine chapters. Chapters 1, 2, and 3 supply the rich context of history, society, polity and law in which every economy is embedded. These chapters require no symbols or technical depth to be understood. In contrast Chapters 4 to 9 offer a reasonably nontechnical exposition of some of the considerable development in formal economic theory pertaining to money and financial institutions as economics becomes more scientific, balancing quantitative measures with qualifications that help to explain what the numbers mean. The second theme is developed in Chapters 10-13 where economic theory with all of its abstractions has to be connected with social and political reality before it can be of use. This calls for both and understanding of physical and social facts, and an appreciation of the role of moral sentiment. Chapters 13 and 14 consider some alternative scenarios that we face in the near future.

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