Due to the complexity of this paper and the font substitution parameters of this program, some non-Windows users may not see all characters properly. I would like to thank Anwar Shaikh for his guidance and critical comments. Without holding them responsible in any way for my views, I would also like to thank Wynne Godley, Tom Palley, Dimitri Papadimitriou, Randy Wray, and Ajit Zacharias who provided very helpful The aim of this paper is to integrate finance, government spending, and the banking sector into a new model of cyclical growth which is rooted in the classical and Harrodian traditions. This classical growth and cycles (CGC) model is an extension of the framework developed by Shaikh

as barter obviously is, it represents a great step forward from a state of self-sufficiency in which every man had to be a jack-of-all-trades and master of none....If we were to construct history along hypothetical, logical lines, we should naturally follow the age of barter by the age of commodity money. Historically, a great variety of commodities has served at one time or another as a medium of exchange:...tobacco. leather and hides, furs, olive oil, beer or spirits, slaves or wives...huge rocks and landmarks, and cigarette butts. The age of commodity money gives way to the age of paper money.... Finally, along with the age of paper money, there is the age of bank money, or bank checking deposits. [Samuelson 1973, pp. 274-61 Although this explanation of the origins of money and of banking is taught in almost all money and banking courses, it has no historical foundation and is internally inconsistent. There is an alternative approach that emerges from a comparative analysis of economic institutions. This

Economists have grappled with the concept of money for centuries. For many, money is a complicated phenomenon which is difficult to define and which, in its modern form, seems almost impossible to explain. After all, what is money- a numeraire, a medium of exchange, a store of value, a means of payment, a unit of account, a measure of wealth, a simple debt, a delayed form of reciprocal altruism, a reference point in accumulation, an institution, or some combination of these? I will follow Minsky and treat the creation of money as a balance sheet operation 2 (1986). Money represents a debt-relation or a promise to pay that exists between human beings. It cannot be identified independently of its institutional usages, for money expresses a social relation (Foley 1987, Ingham 1996). Keynes also took this approach, noting that "[a] money of account comes into existence along with debts, which are contracts for deferred payment, and price lists, which are offers of contracts for sale or purchase " (1930, p. 3). Thus, when individuals enter into a forward contract, they are creating money. More specifically, "[m]oney is privately created when one party is willing to go into debt and another is willing to hold that debt " (Wray, 1990, p. 14). This debt (promise or IOU) is held as an asset by the creditor and as a liability by the debtor. The creation of money, then, is simply the balance sheet operation that records this social relation. It is because money is at once an asset and a liability that Minsky suggests treating it as a balance sheet operation. For Minsky, there is nothing special or elusive about money.

Levy Institute scholars and conference participants. The purpose of the series is to disseminate ideas to and elicit comments from academics and professionals. The Levy Economics Institute of Bard College, founded in 1986, is a nonprofit, nonpartisan, independently funded research organization devoted to public service. Through scholarship and economic research it generates viable, effective public policy responses to important economic problems that profoundly affect the quality of life in the United States and abroad.

comments on earlier drafts and Elizabeth Anderson for many of the ideas applied here. All remaining errors are the responsibility of the author. The Levy Economics Institute Working Paper Collection presents research in progress by Levy Institute scholars and conference participants. The purpose of the series is to disseminate ideas to and elicit comments from academics and professionals. The Levy Economics Institute of Bard College, founded in 1986, is a nonprofit, nonpartisan, independently funded research organization devoted to public service. Through scholarship and economic research it generates viable, effective public policy responses to important economic problems that profoundly affect the quality of life in the United States and abroad.

for references, and Yeva Nersisyan for research assistance.

Levy Institute scholars and conference participants. The purpose of the series is to disseminate ideas to and elicit comments from academics and professionals. Levy Economics Institute of Bard College, founded in 1986, is a nonprofit, nonpartisan, independently funded research organization devoted to public service. Through scholarship and economic research it generates viable, effective public policy responses to important economic problems that profoundly affect the quality of life in the United States and abroad.

comments on the paper.

The possibility of obtaining a 'theory ' of money is questioned, where a theory is taken to mean an explanatory framework using a small number of observables. The root of the problem lies in the maximising nature of economic agents. Money is means to effect transactions and savings; what will be used as money depends upon such a miscellany of factors that no 'theory ' can be expected to emerge. A critical examination of the Quantity Theory, both as a theory and as a testable proposition, supports this claim.

Abstract: The possibility of obtaining a 'theory ' of money is questioned, where a theory is taken to mean an explanatory framework using a small number of observables. The root of the problem lies in the maximising nature of economic agents. Money is means to effect transactions and savings; what will be used as money depends upon such a miscellany of factors that no 'theory ' can be expected to emerge. A critical examination of the Quantity Theory, both as a theory and as a testable proposition, supports this claim.