Non-economists often think that “economists study money.” The reality, though, is that most academic economists hardly think about money at all. Whether we’re talking about tariffs, wages, Social Security taxes, or pollution, the analysis (though often couched in dollar terms for the benefit of the general public) really is grounded in microeconomics and would work just as well if we were talking about a barter economy. In fact, in a typical Ph.D. program, students study models with money in them only when explicitly trying to answer questions about central-bank policy. Even in these cases–in which the very purpose is to draw conclusions about appropriate monetary policy–the underlying logic of the model doesn’t really have a role for money. Instead, economists insert money into the model somewhat awkwardly, through various ad hoc assumptions.

This is the opening paragraph of the Econlib Feature Article for June. The article is “Modeling Money,” and it’s by one of the Article section’s heavy hitters, Robert Murphy. Unlike his usual piece, it’s not policy-oriented. Rather, he lays out two main ways that economists put money in their models and considers the pros and cons of each.

I discussed this issue somewhat in discussing Tom Sargent’s work last year. See the Postscript of this post.