The Monetary Economy

In the previous chapter we introduced an economy in which: commodities are produced for exchange; production and trading plans have to be made on the basis of incomplete information; a system of monetary exchange is employed as a means of overcoming the problems of trade under uncertainty. Further, the use of money makes possible the development of a decentralised advanced economy in which commodity prices are largely market-determined, for economic development and expansion without the operation of the price mechanism would imply the rigid regimentation and loss of individual freedom that is associated with a centrally directed, fully planned economy. That is, while a ‘monetary information system’ is vital to the working of a free economy, it would in principle be possible to dispense with money in a completely planned economy.1