Money, Trust and Hierarchies: Understanding the Foundations for Placing Confidence in Complex Economic Institutions

This paper offers an outline of the institutional theory of forming and sustaining trust in monetary systems. To gain support for their trust in money, economic agents create hierarchically ordered structures of institutional insurance, which reflect the relative liquidity/enforceability of the monetary obligations taken by the parties to economic exchange. These layered structures of attendant institutions, however, fail to perform their supposed function of substantiating trust in money due to the problems of infinite regress, lack of the guarantor of last resort and uncontrollability of complex monetary systems. The paper discusses the implications of this institutional failure for developing trust in the liquidity, stability and acceptability of money in its different forms and contexts of circulation.