This article provides an answer to know if money is a veil in economy.

Classical economists were of the opinion that money acts merely as a medium of exchange and does not affect output and employment—the flow of goods and services in any way.

At best money speeds up the productive process by serving as a go between in transactions. They thought of money simply as a veil which hides real things—goods and services.

Money was considered ‘a kind of wrapper, or garment in which goods came to us—a veil behind which the working of the real economic forces was concealed. According to classicals, however, saving or lending takes place, it happens in terms of goods and services, but the transactions get shrouded behind a monetary veil.


These were the goods that mattered, money just covered these goods and confused the people. Adam Smith “once compared money to a road over which all the produce of the country passes to a market but which does not produce itself even a single blade of anything”. He took money to be a kind of catalytic agent which quickens the chemical reaction but does not change the contents any way.

To him, money makes the process of exchange smooth but does not affect the output in any manner. Classical economists, however, felt that in order to understand the real forces, money, the veil should be removed. During and after the First World War, economists did not understand that money was a veil, and when people wanted money, they really wanted the goods and services, which money helped them to buy.

In 1920s and 1930s money as a veil disappeared and became, instead ‘an active and evil genius something which will hurt and harm and something which is liable to explode’. “Thus, at one time, money was considered as everything; later money was considered only as a veil covering real things; and still later it assumed the dangerous role of inflation and deflation.”

Lord Keynes took a strong exception to the veil attitude of classicals and dismissed it as erroneous. He points out that the presence of money in the economy and more particularly its functions as a store of value (as a link between the present and the future) affects the income, output and employment in more than one way. To him, the monetary sector is an integral part of general economic system.


As a matter of fact, Keynes considered his general theory as a ‘theory of a monetary economy’ in which the rate of interest occupies an important place, which is determined and affected by the demand for and supply of money. Thus, according to Keynes, money affects the rate of interest and through it investment and hence the general level of economic activity, output and employment.

It is, therefore, clear that money is no more a veil. It is interesting to note the difference on money between Classicals and Keynes. Classical thought that people can either spend their money income or keep it in the form of cash balances. But Keynes added yet another choice—people can also hoard their money incomes in the form of bonds and securities. They can store their savings in such liquid assets as give rise to yields. It was this contribution of Keynes, which brought a revolution in the structure of monetary theory and policy.

Post-Keynesian further elaborated the concept and thus the relationship and distinction between ‘Money’. ‘Near Money’ and ‘Liquid Assets’ came to be recognized as theoretically important. According to Prof. Robertson, “It is necessary for the students of economics to try from the start to pierce the monetary veil in which most business transactions are shrouded to see what is happening in terms of real goods and resources; indeed so far as possible they must try to penetrate further to see what is happening in terms of real sacrifices and satisfaction. But having done this they must return and examine the effects exercised upon the creation and distribution of real economic welfare by the twin facts that we do use the mechanism of money and that we have learnt so imperfectly to control it.”