It is not just the amount of money in circulation that has consequences for the health of the economy, but also the velocity with which money circulates as a result of economic transactions.  The idea that money “circulates” conjures up images of a fluid being pumped through pipes. Government spending to invigorate the economy is often described as “priming the pump.” “Circulation” is also associated with the flow of blood through the body. With this metaphor the government functions as the heart and lungs regulating the pressure and purity of the blood.  The problem with both these metaphors is that they are based on the idea that money is some sort of physical entity.

We need a better metaphor for the circulation of money – an electrical circuit, perhaps. A monetary transaction involves a transfer of power or entitlement from one purchaser to another. Purchasing power is a kind of status in a society determining how resources, good or benefits are distributed. It is a unique form of status in that it has a numerical value, and our rules governing it allow it to be transferred in ways that other types of status cannot.

Sociology is generally the discipline that describes ways we confer status in society. Geoffrey Ingham, a sociologist at Cambridge, insists that the nature of money can only be properly understood as a social relation and that the “conventional textbook distinction between ‘money’ and ‘credit’ is not merely anachronistic, but is based on a conceptual confusion.” [see Ingham]

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