New Contributions to Monetary Analysis

Faruk Ülgen, Ramon Tortajada, Matthieu Méaulle, Rémi Stellian

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781135902919
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book sheds light on some of the most recent developments in monetary analysis which offer a theoretical framework for a renewed monetary approach and related policy extensions. It points to recent research on what a consistent and broad-scope monetary theory could be based in the twenty-first century. It highlights new interpretations of monetary theory as put forth by some leading economists since the eighteenth century and new developments in the analysis of current monetary issues.

Part I

Marchands, salariat et capitalistes of Carlo Benetti and Jean Cartelier

What is at stake?

1 After thirty years . . .

Carlo Benetti and Jean Cartelier

It may seem surprising that Marchands, salariat et capitalistes (MSC hereafter), a book without posterity, has been taken as the reference for an academic conference. To quote but one opinion, that book may be viewed as “the symbol of an unsuccessful attempt at developing a heterodox paradigm in economics.” If so, why not leave it to “the gnawing criticism of the mice” to borrow Marx's felicitous expression? Why come back to that forgotten writing just now?

MSC: a radical ambition

MSC was an awkward book to read in 1980, but probably even more difficult to stomach today but for different reasons. At the time of its publication, MSC potential readers were familiar with Marx's texts. Marx's thought was then an obligatory reference among heterodox social scientists. In France, most of current economic discussions were less analytical than ideological. We had the strong desire to free ourselves from the numerous misunderstandings characteristic of hot political debates and loose theoretical discussions. In this view we deliberately chose a new vocabulary without philosophical connotations and we did adopt a strict deductive approach. Exactly what was not trendy at the time! Today, the situation is worse but in a very opposite way. “Critique of Political Economy,” as Marx understood it, has almost totally disappeared from the intellectual scene. What “heterodox” economists invite us to do is to build a positive knowledge in order to provide an alternative to mainstream economics. More often than not, what they advocate is a multidisciplinary approach. They aim at developing a better social science; they no longer have an intention to elucidate the general meaning of the existence of social sciences, to investigate the very roots of economics, or to seriously inquire into economists’ pretension to science by means of a careful study of what is going on in modern academic economics. MSC radical orientation does not recommend it for present readers.

Our ambition was to develop a pure economic theory – not what multidisciplinary is supposed to be about! – without pretending to rely on a “physical objectivity” – what severs it from hard sciences and makes very relative any claim to science. Our refusal of a presupposed commodity-space (the so-called hypothèse de nomenclature) and our suggestion to conceive of individuals as pure accounts are two complementary ways of emphasizing social objectivity – money – against a “natural” one – use values. For us, economic theory should not be thought of as overhanging its object, society. We have presupposed money (far from the illusions of micro-foundation) ¹ to make it clear that economic theory is a component of our society and that this very fact is a specific characteristic of our modern societies as compared with others where social sciences are not to be found. In this sense, social sciences in general and economics in particular are more facts to be explained than means of knowledge.

Our approach may sound paradoxical and condemned to failure as Marx's critique of political economy. It is not possible to escape from the society in which we have been brought up and in which we live, no more than it is possible to lift oneself in the air by drawing one's bootlaces. But it remains important to confront a monetary analysis, as that proposed in MSC, which recognizes the relative knowledge provided by economic theory, with the theories of value which claim they belong to science. Such a confrontation is an element of a critique of Political Economy. It is a means to get free from any injunction to science or at least not to be a victim of it. It is no surprise that such a posture is not very popular in the present academic system.

The notion of price gives a good illustration of the difficulty in following our approach. Price is a central concept for almost all economists. It is quasi impossible to ignore it without being accused of “intellectual autism.” But, at the same time, it seems impossible also not to introduce a physical description of the commodity whose price it is about. Value theoreticians (Marx and Debreu included) deal with such “use values” by assuming a commodity-space at the very outset. MSC rejects such an assumption. What is to be done then?

To renounce our strict position and to accept an a priori given commodity-space is a first strategy. But does not that strategy lead to abandon everything of our theory? Let us answer in a pragmatic way and avoid too general methodological debates. They more often lead to a sterilization of reflection than to its stimulation. What is permitted by a provisional assumption of a given commodity-space is to check to what extent a monetary analysis may get better results than value approaches. Some of the work we have done follows that line.

In MSC we did adopt a more ambitious strategy. We did defend (namely pp. 106–11) that use values are not a priori given and that they have to be derived from social assumptions. The basic idea is that the plurality of individuals (entrepreneurs and wage-earners) is accounted for by a payment matrix. From that social space it is quite possible to constitute use values which are suited for the problem dealt with. ² If so, price as a notion ceases to be a problem: use values are no longer exogenous (and arbitrary). They become endogenous and are part of the monetary approach. It is even possible to make a step further in accepting Marx's challenge consisting of the determination of physical conditions of reproduction starting from the Marxian scheme of monetary flows (see C. Benetti, A. Béraud, E. Klimovsky and A. Rebeyrol contribution to this volume). From a known matrix of monetary flows an unknown technological matrix is derived (what Marx calls “the hidden abode of production”). Both matrices have the same trace, determinant, and eigenvalues. This result is obtained free of any consideration for use values and prices.

MSC: what survives?

Two basic themes gave MSC its general structure. They are still on our agenda today.

1. Market is the mode of constitution of individuals conceived of as quantities of wealth; that constitution occurs through the resolution of the difference between two related but distinct evaluations: the first one by the individual himself, the second by all the others. That resolution is nothing but an a priori imposition of equivalence (budgetary constraints).

The principle above is common to all value theoreticians but has not been yet rigorously applied because of some assumptions most of them accept. A monetary approach appears to be more adapted to deal with it. Let us take just one example. Many years after MSC we have sketched the solution to the fundamental problem of value raised by Marx, that of the contradiction between abstract labor and concrete labor. An immanent critique of Marx's solution, restoring the logical consistency of his argument, leads to eliminate labor as an inappropriate notion and to replace it by monetary evaluations. ³ A critique of the same type could and should be developed concerning the present state of value theory. But mainstream economists and their critiques neglect to inquire into the foundations of economics, a task certainly as difficult as necessary for a fair understanding of our society and of the representation it gives of itself (through social science for instance).

2. Equivalence principle does not govern all observed monetary relations. The fact that all individuals are related through money payments does not mean that they have the same status. A decisive criterion is their position vis-à-vis the issuance of means of payment. Some have a direct access to means of payment, some others are excluded from any direct access to money. The latter economically exist only if they find an indirect access, which implies getting money from the former. Here lies the origin of non-equivalent relations. A significant example is waged labor.

Most of modern production is performed by waged labor managed with a view to a maximum profit in a context of world competition between capitalists. If among entrepreneurs and capitalists market relations are the rule, between entrepreneurs and wage-earners another relation exists. We call it waged relationship (rapport salarial). Most theoreticians take it for granted that waged relationship is a market relation, although specific. They do not realize that other types of production would be conceivable. Producers (people having a direct access to money) could freely decide to create collective organizations of production, each of them being on a same footing (internal organization and hierarchy could be democratically decided). In such an economy there will be no waged labor but only independent and/or associate producers having market relations. By contrast, waged relationship is not and cannot be a market relation. As a matter of fact, in our economies, waged relationship is the condition for production to exist and market relations to take place.

The fact that equivalent and non-equivalent relations co-exist under the same cover, money relation, still goes unnoticed. Not only by academic theoreticians – this is the normal consequence of a value theory that absolutely requires equivalence – but also by most heterodox economists – this is more surprising but reveals also the poor state of heterodox theory.

Treating the two themes above simultaneously, as it is done in MSC, permits avoidance of two important pitfalls. The first one is to consider money as a special commodity and to deal with it accordingly. Money becomes an optional commodity: it may not exist if another technique of transaction (typically barter) is available and preferred (money has a zero price in this case). Pure money theory is reduced to a “logical genesis” of money and relies on an illusory micro-foundation. The second pitfall is to treat a capitalist economy as a pure market economy. Consequently critique of market and critique of capitalism are not to be distinguished (think of the political and philosophical issues at stake) and an important part of our legacy in economic theory is lost (Ricardo, Marx, and Keynes to mention the ancestors).

The two main themes just mentioned are still our preoccupation even if their further development has not always confirmed our hopes.

The question of market as the means of constitution of individuals is still open. Its solution crucially depends on the dynamic theory of market processes. The monetary approach is far from its objectives. A specific way of dealing with dynamics has been explored, the viability approach (the mathematical apparatus is due to Jean-Pierre Aubin 1997). Although it is free from the well-known problems responsible for the failure of global stability of general competitive equilibrium, it has not yet produced interesting results in our field. This is not the end of the story and some work is in progress. The intuition remains that monetary analysis is well suited for the study of market dynamics because it naturally hosts the idea of a market mechanism, the typical example of it being Cantillon's rule (adopted by Smith, Keynes, and modern strategic market games).

Concerning our second theme, the co-existence of equivalent and non-equivalent monetary relation, two kinds of advances may be noted. On the one hand, it has been shown that Keynes's conjecture (the existence of a general competitive equilibrium with flexible prices and involuntary unemployment) holds true a necessary (but not sufficient) condition being the existence of a waged relationship radically different from a market relation (Cartelier 2003). On the other hand, a model of differentiation between entrepreneurs and wage-earners has been elaborated, founded on an unequal access to money (Cartelier 2010). MSC thesis that waged relationship is a relation of monetary submission, which makes it distinct from a market relation, has now a more sophisticated expression allowing, we may hope, to facilitate a discussion with theoreticians unfamiliar with the monetary approach but interested by its results.

As far as money is concerned, our views have evolved thanks to confrontations with modern academic theory. But basic ideas remain valid. Money we have in mind is not money in general, money sans phrase, but money in a market economy. ⁴ The general line of reasoning is crystal-clear: money is the name of the (minimal) set of rules which makes intelligible the mode of constitution of individuals through the market. This set has three elements: a nominal unit of account, a minting process, and a procedure of balances settlement, and should be sufficient to build a model of market process ⁵ (some work is in progress). That this money theory breaks with or encompasses academic theory is of secondary importance (see the chapter of J. Cartelier in this volume) in comparison to the interest of the confrontation with the recent advances of academic theory.

What basically makes the difference between a MSC-type approach and academic theory is not a priori methodological (it could be so a posteriori). It concerns the heart of the matter that is the capacity to make mutually compatible the fact that effective (and not only virtual) out-of-equilibrium positions are the rule and the assumptions about individuals (namely rationality). The question of disequilibrium is not elucidated in academic theory; it is swept under the rug. Disequilibrium is at the center of the monetary approach. This is less a methodological position than an analytical necessity. It comes from a critical analysis of economic theory that is of what history of thought has identified as Political Economy. In that, Cantillon's rule (or Shapley-Shubik's rule) plays a major role. Shapley-Shubik's rule does not make sense except in a monetary economy. It determines prices whether equilibrium is obtained or not. It is an indispensable ingredient of a model of a monetary market process. ⁶

In spite of the fact that MSC considers the economic disequilibrium as a central topic of economic theory, it does not say a single word about the problem of change and, as a consequence, about dynamical processes. Some recent investigations (where the hypothesis of a given commodity-set is added to the monetary rules) have tried to fill this gap, at least partially (C. Benetti; Ch. Bidard; E. Klimovsky and A. Rebeyrol). They study disequilibrium situations and their dynamics in a bisector economy with a linear and single product technique. Such an economy can also be considered as the productive sector of a macroeconomic model in which some important issues such as the structure of the production and relative price can be dealt with. A first model applies the monetary theory of MSC. On the basis of expected monetary prices, and supposing that the whole expected profits are devoted to investment, capitalists calculate their production plans. The quantity of money representing the monetary value of these plans is provided by the bank through the minting process. Market prices and the allocations of the means of production are determined by Cantillon's rule.

The economic disequilibrium is both real and monetary (capitalists are considered as individual accounts) and the commodity which is under-evaluated is defined as “scarce.” The balance settlement is made through the appropriation by the creditor of a part of the real capital of the debtor whose value at the market price is equal to the amount of his debt. Effective productions are then determined. Only the scarce commodity is entirely accumulated and its producer can accumulate his whole effective profit which is higher than the expected one (except in a “pathological case” whose conditions have been identified). The disequilibrium state (more exactly the temporary disequilibrium) is completely determined: the prices, the rates of profit, and the produced quantities are known. The dynami...

Table of contents

• Cover
• Title Information
• Title Page
• Copyright Page
• Table of Contents
• List of Figures
• List of Tables
• List of Contributors
• Preface and Acknowledgements
• Introduction: Renewal of Monetary Analysis
• Part I: Marchands, Salariat et Capitalistes of Carlo Benetti and Jean Cartelier
• Part II: Money in the History of Economic Thought
• Part III: The Basis for Monetary Analysis
• Index