New contributions to monetary analysis the foundations of an alternative economic paradigm

New Contributions to Monetary AnalysisIn the wake of the 2007–8 economic crisis, the need for an alternative paradigm tothe mainstream real non-monetary equilibrium paradigm gains even m

New Contributions to Monetary Analysis

In the wake of the 2007–8 economic crisis, the need for an alternative paradigm tothe mainstream real (non-monetary) equilibrium paradigm gains even more impor-tance, in the same way as some authors (including Keynes) were insisting on arenewal in economic theory in relation to the crisis of the 1930s The monetaryapproach developed in this book maintains that money – as a set of defined rulesand practices – is the basic institution without which no capitalist economy can

be understood This approach can give rise to a consistent alternative paradigm todeal with current economic issues

The book starts with a long-standing debate in economics: what is at stake in

a monetary theory of capitalist economy? From the perspective of the History

of Economic Thought, it presents works which offer theoretical foundations ofmodern research on money as well as the origins of analytical ambiguities thatdominate contemporaneous debates on monetary issues The book then developsthe monetary approach in terms of the monetary constituents of capitalism, thepayment system, the coordination issue in a decentralized market economy andthe ambivalence of money, financial instability, the paradox of profit in a monetaryeconomy, the conflict between financial rents and wages, money in a socialisteconomy, and the innovative way of teaching economics by using a (alternative)monetary paradigm

This book sheds light on some of the most recent developments in monetaryanalysis which offer a theoretical framework for a renewed monetary approachand related policy extensions It points to recent research on what a consistentand broad-scope monetary theory could be based on in the twenty-first century

It highlights new interpretations of monetary theory as put forth by some leadingeconomists since the eighteenth century and new developments in the analysis ofcurrent monetary issues

Faruk Ülgen is Head of the Department of Economics and Management

(Bachelor’s Degree), Branch campus of Valence, Grenoble University, France

Matthieu Méaulle is Economic Advisor, Foundation for European Progressive

Studies (FEPS)

Rémi Stellian is Teaching Assistant, Distance University of Switzerland and

Grenoble University, France

Ramón Tortajada is Emeritus Professor, Grenoble University, France.

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New Contributions to

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The foundations of an alternative

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collaboration of Matthieu Méaulle, Rémi Stellian and Ramón Tortajada)

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FARUK ÜLGEN

PART I

Marchands, salariat et capitalistes of Carlo Benetti and

CARLO BENETTI AND JEAN CARTELIER

RAMÓN TORTAJADA

3 Nominalism and money in C Benetti and J Cartelier 31ARNAUD BERTHOUD

PART II

Money in the history of economic thought 41

x Contents

6 Monetary objectivity and physical objectivity in Marx’s

CARLO BENETTI, ALAIN BÉRAUD, EDITH KLIMOVSKY AND ANTOINE REBEYROL

LORD MEGHNAD DESAI

8 A history of the evolution of the Hahn process 103JOHN PERDOMO

9 Monetary production economy versus real exchange economy 122CLAUDE GNOS

PART III

The basis for monetary analysis 133

GUGLIELMO FORGES DAVANZATI AND GUIDO TORTORELLA ESPOSITO

List of figures

6.3 Critical proportions for reproduction crisis D > 0 79

6.4 Critical proportions for reproduction crisis D < 0 816.5 Critical proportions for adjustment crisis 82

8.1 Exchanges at disequilibrium given prices 10713.1 The key role of banks in the pre-financialization era 19513.2 The altered role of banks in finance-dominated regimes 196

15.2 Wage differentials and the fair wage 228

List of tables

8.2 Exchange process with medium of exchange 11710.1 Quasi-matrix of bilateral real flows of Model I (good 1; good 2) 13810.2 Quasi-matrix of bilateral real flows of Model II (good 1; good 2) 13910.3 Matrix of bilateral monetary flows of Model II in dollars 13910.4 Quasi-matrix of bilateral real flows of Model III (good 1; good

10.5 Matrix of bilateral monetary flows of Model III in dollars 14110.6 Quasi-matrix of bilateral real flows of Model IV (investment

10.7 Matrix of bilateral monetary flows of Model IV in dollars 14310.8 Quasi-matrix of bilateral real flows of Model I (good 1;

13.4 The result of a financial-market transaction in the reformed

book-keeping structure for domestic payments 200

List of contributors

Carlo Benetti Emeritus Professor of Economics at the Université Paris Ouest

Nanterre La Défense, France

Guy Bensimon Associate Professor of Economics at the Institut d’Etudes

Poli-tiques de Grenoble, France

Alain Béraud Professor of Economics at the Université de Cergy-Pontoise,

France

Arnaud Berthoud Emeritus Professor of Economics at the Université de Lille 1,

France

Jean Cartelier Emeritus Professor of Economics at the Université Paris Ouest

Nanterre la Défense, France

José Félix Cataño Professor of Economics at the Universidad Nacional de

Colombia and the Universidad de los Andes de Bogotá, Colombia

Edouard Cottin-Euziol PhD Student at the Université de Limoges, France Ghislain Deleplace Professor of Economics at the Université Paris 8, Saint-

Denis, France

Lord Meghnad Desai Emeritus Professor at the London School of Economics,

United Kingdom

Guglielmo Forges Davanzati Associate Professor of History of Economic

Thought, Chair of Labour Economics at the University of Salento of Lecce,Italy

Claude Gnos Senior Research Associate at the Centre d’Etudes Monétaires et

Financières, Université de Bourgogne, France and at the InternationalEconomic Policy Institute, Laurentian University, Canada

Edith Klimovsky Professor of Economics at the Metropolitan Autonomous

Uni-versity, Mexico-City, Mexico

xiv List of contributors

Matthieu Méaulle Economic Advisor at the Foundation for European

Progres-sive Studies (FEPS), Brussels, Belgium

José M Menudo Associate Professor of Economics at the Universidad Pablo de

Olavide, Seville, Spain

John Perdomo PhD Student in Economics at the Université Paris-Ouest Nanterre

La Défense, France

Antoine Rebeyrol Professor of Economics at the Université Paris Ouest Nanterre

La Défense, France

Sergio Rossi Professor of Economics, Chair of Macroeconomics and Monetary

Economics, at the University of Fribourg, Switzerland

Rémi Stellian Teaching Assistant, Distance University of Switzerland and

Grenoble University, France

Ramón Tortajada Emeritus Professor of Economics at the Université Pierre

Mendès France-Grenoble 2, France

Guido Tortorella Esposito Assistant Professor of History of Economic Thought

at the University of Sannio of Benevento, Italy

Fabrice Tricou Associate Professor of Economics at the Université Paris Ouest

Nanterre la Défense, France

Faruk Ülgen Associate Professor of Economics at the Université Pierre Mendès

France-Grenoble 2, France

Preface and acknowledgements

This book is the outcome of a set of contributions to monetary analysis, through

a selection of papers presented at the international colloquium “Monetary

ana-lysis: About Marchands, salariat et capitalistes,” held at Pierre Mendès France

University, Grenoble, in April 2010

Although economic theory has reached an exceptional level of scientificabstraction and intellectual development during the last century, monetary theoryhas not yet reached the same level of rigorous and relevant modeling that wouldlead scholars as well as policy makers to state unambiguously what money is andhow recurrent monetary issues observed in modern capitalist societies could besolved Therefore, without euphemism one could argue that there is no monetarytheory that could be presented as “The” outcome of several centuries of theoreti-cal advances in economics while economic problems in our societies seem to beintimately related to monetary malfunctioning of capitalist systems In the wake

of the ongoing world-wide economic and financial crisis, the need for an tive paradigm to mainstream economics gains even more importance, in the sameway as some authors (including Keynes) were insisting on a renewal in the eco-nomic theory of their time in relation to the crisis of the 1930s The game is worththe candle and the aim of this book is to shed light on some of the latest updateddevelopments in monetary analysis

alterna-The book should also be understood as a part of a global intellectual ment for re-defining what should be considered as sound economic policy making,with a special focus on banking, financial as well as monetary systems, both atnational and international levels It stands perfectly within the calls for a renewedEconomic Analysis framework, such as those issued by the World EconomicsAssociation or by the Institute for New Economic Thinking

move-We would like to thank all participants of the colloquium and contributorsfor their effort in finalizing their first drafts, the quality of their work andfruitful debates The colloquium has enjoyed the active logistic and financial sup-port of the Foundation for European Progressive Studies, Pierre Mendès FranceUniversity-Grenoble 2, the Centre of Economic Researches on Public Policies in

xvi Preface and acknowledgements

a Market Economy (CREPPEM) of the University of Grenoble 2 and its PhD dents, the Region Rhône-Alpes and the City Council of Grenoble We expressthrough this book our sincere gratitude toward all the contributors

stu-We hope that the book will spur debate and further open-minded research

on monetary economics, and that the reader will find in this book pleasant andstimulating reading

M Méaulle, R Stellian, R Tortajada, F Ülgen

mod-In the economic theory of the eighteenth and nineteenth centuries, all eminentthinkers tried to deal with money, at a given moment in their major works Some

of them, like James Steuart, who was Adam Smith’s contemporary and felloweconomist, suggested interesting premises of a monetary theory in a capitalisteconomy, but did not develop it to offer an integrated analysis Some others, likeLéon Walras, seemed hesitant about the conception of money before crowding itout and designing their approach on non-monetary assumptions

With Walras-based approaches gaining ground and dominating the economicthought in the twentieth century, money and related monetary issues were treated

as an annex to a more general utilitarian modeling Without burdening itself sively with the Keynesian “interlude,” modern economic theory considered theeconomy in non-monetary terms From J Hicks, P Samuelson and M Friedman to

exces-more recent rational expectations and real business cycles approaches, economics

failed to find a relevant scope of money in an equilibrium-based conception of thecapitalist market economy This conceptual tendency also dominates the prop-

erties of search-theoretic/bargaining models à la Kiyotaki-Williamson-Wright

which mainly rely on rational and efficient individual choices and remain founded

on equilibrium situations

The major difficulty probably comes from the method of analysis adopted in aneconomic equilibrium framework that consists of integrating money into the struc-ture of a previously reached real markets’ global compatibility without money

As Joseph Schumpeter argued in History of Economic Analysis, one can draw

a clear distinction between two bodies of economic analysis, real and monetary,

2 Introduction

to “convey an important truth.” They are not solely two analytical variants but

“pure types” which give two alternative paradigms because depending on the typechosen, the theory would not have the same conceptual structure or the same impli-cations In the real paradigm, money enters the picture only in the modest role of

a technical device which does not affect the economic process Money is only

a veil which adds nothing new to the real phenomena Schumpeter maintained

in the Theory of Economic Development that “nothing essential is overlooked in

abstracting from it.” Yet, such an alternative methodology introduces money at thevery core of the analytical structure and refutes the idea that all essential features

of the economy can be represented by a real exchange economy model Therefore,

it becomes obvious that the economic action cannot be explained without taking

account of money The monetary system’s modus operandi is the first step of all

In this regard, the monetary paradigm relies also on some Kaleckian ples (“workers spend what they earn, while entrepreneurs earn what they spend”)

princi-to point out the overwhelming position of entrepreneurs in capitalism This tion is the result of monetary relations between banks and entrepreneurs Indeed,money is created throughout debt-financing operations, which give people (espe-cially the entrepreneurs) the ability to decide the fate of economic evolutionindependent of the general equilibrium conditions Therefore, money comes into

posi-the picture not through posi-the willingness of an unconscious deus ex machina like

Milton Friedman’s helicopter but through the private expectations of banks andentrepreneurs Such a money-based economy stance rejects the classical view ofcommodity money involved in real-exchange models The modern origins of thisview can also be found in Keynes’s writings on the finance motive, emphasizingthe very role of money and banks in a market economy

Money was, and is indeed, a major source of inspiration for unrepentant erodox economists but also for pluralistic approaches that are committed to thediscovery of the real working of capitalism in an open-minded way rather than

het-in academic conformism Consequently, this book aims at brhet-inghet-ing back to thefore an old but very fecund and “young” debate within economic theory: to high-light the role of money in capitalist economies The fact that money is the basicinstitution without which no capitalist economy can develop is ignored by mosteconomists As a result, monetary analysis is shared only by a few economists,although it gives rise to a clear-cut alternative paradigm

Introduction 3

In this respect, this book provides a variety of new contributions to monetaryanalysis.1Departing from the works of two French economists, Carlo Benetti and

Jean Cartelier who suggested, more than thirty years ago in Marchands, salariat

et capitalistes (MSC henceforth), what the general principles of monetary

analy-sis could be in a capitalist economy, the book integrates recent developments of aspecific monetary approach into a modern framework of monetary economics andaims at deepening the meaning and implications of monetary analysis Some con-sequences of monetary analysis are then discussed, including the nature and therole of money in market economies as well as in a planned economy, the use ofthe equilibrium concept, financial instability, and the teaching of economics Vari-ous chapters of the book reveal that the research is broad in scope when monetaryissues are under consideration

The book is comprised of three parts The first part presents the analyses ofCarlo Benetti and Jean Cartelier (Chapter 1), Ramón Tortajada (Chapter 2) andArnaud Berthoud (Chapter 3) about the foundations of a long-standing debate

in economics: what is at stake in a monetary theory of capitalist economy? Inthe second part, the chapters by José Menudo (Chapter 4), Ghislain Deleplace(Chapter 5), Carlo Benetti, Alain Béraud, Edith Klimovsky, and Antoine Rebeyrol(Chapter 6), Meghnad Desai (Chapter 7), John Perdomo (Chapter 8) and ClaudeGnos (Chapter 9) give an account of major monetary analyses from the perspective

of the history of economic thought They point to those works which offer ical foundations of modern research on money as well as the origins of analyticalambiguities that dominate contemporaneous debates on monetary issues The thirdpart of the book aims to suggest a theoretical framework for a renewed monetaryapproach and the extensions of such an alternative With this aim, Fabrice Tricou(Chapter 10), Jean Cartelier (Chapter 11), Faruk Ülgen (Chapter 12), Sergio Rossi(Chapter 13), Edouard Cottin-Euziol (Chapter 14), Guglielmo Forges Davanzatiand Guido Tortorella Esposito (Chapter 15), Guy Bensimon (Chapter 16), andJosé Félix Cataño (Chapter 17) offer results of recent research on what a consis-tent and broad-scope monetary theory could be based in the twenty-first century.These chapters especially develop the monetary approach in terms of the mon-etary constituents of capitalism, the payment system, the coordination issue in

theoret-a decentrtheoret-alized mtheoret-arket economy theoret-and the theoret-ambivtheoret-alence of money, fintheoret-ancitheoret-al insttheoret-a-bility, the paradox of profit in a monetary economy, the conflict between financialrents and wages, money in a socialist economy, and the innovative way of teachingeconomics by using an alternative monetary paradigm

insta-In the first chapter, Carlo Benetti and Jean Cartelier ask, in a provocative way,why a thirty-year-old book (MSC) has not been left to “the gnawing criticism ofthe mice” to borrow Marx’s felicitous expression The answer seems to lie in thefact that the basic difference between a MSC-type approach and the academic

theory is not a priori methodological It concerns the heart of the matter that is the

capacity to make mutually compatible the rule of out-of-equilibrium positions in

a capitalist economy and the assumptions about individuals (namely rationality).The question of disequilibrium is not elucidated in academic theory; it is dumpedunder the rug

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4 Introduction

Disequilibrium is at the centre of the monetary approach This is less a ological position than an analytical necessity It comes from a critical analysis ofeconomic theory (identified as Political Economy) In that, Cantillon’s rule (orShapley-Shubik’s rule) plays a major role Shapley-Shubik’s rule does not makesense except in a monetary economy It determines prices whether equilibrium

method-is obtained or not It method-is an indmethod-ispensable ingredient of a model of a monetarymarket process Benetti and Cartelier state that continuing to evade the prob-lem of the (more or less) decentralized coordination among individuals who haveunequal control of payment flows is not a successful research agenda However,Benetti and Cartelier remark that our society is an individualist society and it is

on this ground that the “monetary” approach has to exhibit its superiority overthe “real” approach Instead of evading such a confrontation under the pretext thatthis ground is mostly populated by economists whose ideas we do not like, it isvital to show that the individuals we speak of, while being individuals, are not thesame as those of the academic theory In MSC, individuals are viewed as indi-vidual accounts, i.e as nodes in a network of payments and not as points (initialendowments) or functions (preferences or techniques of production) defined on acommodity-set

In the same vein, Ramón Tortajada, in the second chapter, recalls some tled issues in the monetary theory through the analytical framework developed

unset-by Benetti and Cartelier Tortajada remarks that contrary to many critiques ofPolitical Economy, the work of Benetti and Cartelier rejects acceptance of theincompleteness of Political Economy that may be completed with sociologi-cal, psychological, and anthropological work Benetti and Cartelier intend toshow that it may be possible to make new proposals while remaining withinthe economic field The scope of this approach goes toward the analysis ofcontemporary economic and social issues and can even lead to recommend eco-nomic and social policy measures Times of crisis often open up opportunitiesfor such debates From this perspective, Tortajada mentions three major propos-als of Benetti and Cartelier which would sustain this assertion: the monetaryapproach, the determination of prices, and the nature of the “employer-employeerelationship.”

The first proposal, an identification of a specific approach called the monetaryapproach, is the most important one and states that every economic magnitude(e.g prices, income, taxes, etc.) has a monetary dimension Consequently, theunderstanding of economic relations implies the understanding of money as thecentral economic object Money expresses a set of rules on which the privateexpectations and actions of “entrepreneurs” are established and their results aresocially evaluated This dimension reflects both the private character of economicdecisions and their necessary social insertion On the one hand, economic units areonly expressed through their economic plans in monetary “accounts” and, on theother hand, money can only be understood socially as it sweeps away everything

in its path as private monetary relations evolve through interconnectedness amongeconomic agents

Introduction 5The second proposal studied by Tortajada concerns the cornerstone of economictheory: the theory of prices which is founded on the nomenclature hypothesis(everyone knows everything about the goods) This hypothesis is related to theassertion that the world is known, by economic agents and by the economist,before any economic operation Here, the starting point does not consist in ana-lyzing the information about goods but rejecting the necessity of this information

to create an economic stance The starting point of the monetary approach is the

“economic subject” considered in a unit of account (money) common to all nomic subjects This does not at all mean that prices are not important or may not

eco-be determined but that a new price theory is required Moreover, in later work,based on Richard Cantillon, Benetti and Cartelier propose elements for a new way

to determine monetary prices

Finally, the third proposal concerns the employer-employee relationship.Employees’ condition is, in most conventional, marginal, or Marxist economictheories, presented as an extension of the commercial relationship: employees aresaid to be “sellers” of merchandise or renters of a service In MSC, this is nolonger the case Society is structured into two groups, two classes: one has access

to money, or more precisely its activity generates money – this is the capitalistclass; the second, the employee class, can only access money if it accepts the con-ditions imposed by the first This “employer-employee relationship” thus becomes

a relationship of “monetary dependence.”

In the third chapter, Arnaud Berthoud brings to the fore some issues thatone may identify as the roots of theoretical ambiguities in monetary analysis.Berthoud states that one can find two philosophical foundations behind Benettiand Cartelier’s approach The first one is Marx: Political Economy holds backand contains the monetary approach of society and this seems to be an unfor-tunate mistake The second one is Wittgenstein: Political Economy in generaland the law of value in particular are confused and useless, which can be cor-rected by rigorous analysis under monetary nominalism But to Berthoud, it seemsthat the credibility of these two ideas is undermined by their combination ratherthan bolstered One should choose: either the advantages of nominalist analysisbut without Marx’s moral indictment of the monetary or mercantilist economy;

or the inevitable approximation of moral realism but without the advantages ofWittgenstein’s inspiration

José M Menudo presents, in the fourth chapter, some eighteenth-century runners of modern economics who contributed to the crowding out of moneyfrom economic theory During the eighteenth century, money was removed fromthe most important theories of price determination Adam Smith’s argument forchange is a new concept of wealth: a participant in a Smithian market does notwant money, but rather the greatest possible quantity of commodity in exchange.The barter myth was taken up again and integrated into a particular “tradingspace.” Although these authors were clearly aware of the issue of money, they sep-arated its role from the circulation of merchandise Menudo examines authors likeA.-R.-J Turgot and Richard Cantillon who take their cue from monetary thinking,

6 Introduction

and demonstrates that removing money also took an active part in both ries of social justice and economic policy mechanisms Menudo maintains that

theo-a new concept of ctheo-apittheo-al theo-allows Turgot to review John Locke’s Theory of Justice

by means of new forms of accumulation Given that Turgot views no distinctionbetween money and the Prince, he rejects that the representation of social phe-nomena must begin with the circulation of money because the Authority is not theorigin but the consequence of a social contract He also asserts that unlike JohnLaw’s proposal, Richard Cantillon’s adaptive incentive mechanism is exclusivelybased on market price Therefore, once real price replaces money price, there is

no more correlation between incentive behavior and money

Contrary to the analytical choice of these authors, Ghislain Deleplace remarks

in the fifth chapter that David Ricardo may surprisingly be brought close to Benettiand Cartelier Deleplace states that one of the distinctive statements of MSC is that,

in the analysis of a monetary economy, the unit of account is the starting point,

as the catalogue of commodities is the starting point of the standard analysis of amarket economy (Value Theory) This statement has three corollaries: a) the unit

of account is purely nominal; b) it is arbitrary, it is proclaimed by a public tution outside the market, and this proclamation is the necessary and sufficientcondition to have it adopted by monetary subjects (agents); c) the means of pay-ment is a concept that comes logically after the unit of account, its introductionanswers the question, not of the unit in which one counts, but of how much iscounted However, Deleplace expresses in the statement that the unit of account

insti-is the only starting point of the analysinsti-is of a monetary economy and maintainsthat this starting point must be the unit of account and the means of payment, twoconcepts that are distinct but cannot be dissociated For that he refers to a metallic-standard monetary system of which the study seems to be useful Deleplace thenmentions three questions which arose in such a system: monetary sovereignty (thelegal definition of the unit of account), the permanence of the unit of account (theviability of the monetary system), and the external constraint (the existence of

a means of settlement) Deleplace argues that one must deal with these issues toelaborate a non-standard approach to money So these questions have been studied

by an author who is generally considered as one of the most orthodox in monetarymatters: David Ricardo

Another author rich in controversies in monetary theory, Karl Marx, is sidered by Carlo Benetti, Alain Béraud, Edith Klimovsky, and Antoine Rebeyrol

recon-in the sixth chapter Benetti, Béraud, Klimovsky, and Rebeyrol question the etary objectivity and the physical objectivity in Marx’s reproduction model Marxclearly gives a lot of importance to the physical reproduction of the use-values,but he does not provide a satisfactory analysis of the conditions of such a repro-duction Benetti, Béraud, Klimovsky, and Rebeyrol aim at completing Marx’sanalysis on this point by rewriting Marx’s scheme as a model and bringing outits typical features The central role of investment in the sector producing the

mon-means of production is highlighted and the a priori surprising steady growth path

from the second period is explained Then the authors study the physical ditions of equilibrium and crises irrespective of any social specification and put

Introduction 7into light a remarkable property of Marx’s approach: such conditions are com-pletely determined only by knowing the monetary flows taken by Marx as initialdata Therefore, Benetti, Béraud, Klimovsky, and Rebeyrol come back to Marx’sschemes by adding further social constraints to capital reproduction which areimposed by some of Marx’s assumptions (in particular, the fixed prices and rates

of profit) and show how peculiar Marx’s figures of volume II are and point out thatany interpretation of Marx’s contribution in terms of a model precluding crises has

to be dismissed

In the seventh chapter, Meghnad Desai offers a transversal reading on etary theory by giving a brief account on money in economic thought FromRicardo, Marx, and Wicksell to Myrdal, Hayek, and Keynes, Lord Desai presentsthe “abortive revolution in monetary theory,” often related to the notion of equi-librium Lord Desai puts forward the inappropriateness of equilibrium theories

mon-to model monetary economics Most, if not all, economics is dominated by thenotion of equilibrium The subject matter of economics is so complex and in anysituation there are so many possibilities that one needs some systematic way ofruling out many of these possibilities Lord Desai argues that equilibrium is thenotion which helps us in this regard Away from equilibrium anything is possible;

in and around equilibrium, only a few things are possible While there is a ety of equilibrium concepts available for the economic theorists to characterize

vari-an economy, the Walrasivari-an General Equilibrium (WGE) as the main reference inmodern economic theory chooses among the many available notions of equilib-rium a unique (rather than multiple) equilibrium (equilibria) which is also about

a stationary economy in which time plays no part The markets for all ties and services clear simultaneously This way of characterizing an economy hasseveral consequences First, being stationary, the economy can never exhibit anyfluctuations or any crises endogenously Thus it is not surprising that the mostrecent crisis was not foreseen by the best macroeconomic models developed and

commodi-taught in the best universities The models ruled out such crises ex ante Second,

attempts to introduce money into the Walrasian system have been made manytimes ever since Walras’s ideas became accepted Most recently, such attemptswere made by Frank Hahn and a group of bright young theorists during the 1960sand 1970s but the attempt was admitted to be a failure Lord Desai remarks thenthat there has to be a change of direction So in search for an alternative, manyauthors have tried to redress the balance in favor of what Keynes was trying to

do Axel Leijonhufvud pointed out the contrast between General Theory and what

became Keynesian economics Post Keynesians such as Sidney Weintraub, PaulDavidson, Victoria Chick, Hyman Minsky and many others have tried to get the

discussion back to the General Theory in the aim of redirecting the economic

analysis toward monetary approaches

In order to develop these crucial issues, it may be fruitful to consider two tions The first one is about the attempts made by Frank Hahn to deal with thecoordination problem in a market economy The second direction, maybe an alter-native one, is the appraisal of John Maynard Keynes’s contribution to monetaryanalysis Chapters eight and nine are devoted to these two topics

8 Introduction

In the eighth chapter, John Perdomo deals with the role of the introduction of

a means of exchange in the WGE and presents “a history of the evolution ofthe Hahn Process.” Perdomo states that market theory must be able to describe,through a price mechanism, the decentralized and competitive coordination ofindividual plans for the provision of resources, very often but not exclusivelyassociated with the notion of equilibrium, as well as a market process whereexchanges lead the economy to this state Its power is to consider that a marketsociety where all individuals pursue their own well-being can favorably organizeitself through the free working of the market for all those who intervene without

falling into chaos, as emphasized by Kenneth Arrow and Frank Hahn, in their

Gen-eral Competitive Analysis Perdomo maintains that this explains what attracted

the attention of almost all schools of economic thought since Adam Smith Thisessential character was recognized by the architects of the WGE who appreciated

it as the single most important contribution of economics to the social sciences.Unfortunately, the same theorists have limited market theory to equilibrium andits properties The theory of market process dynamics associated with the WGErelies on imposing constraints on the shape of the aggregate excess demand func-

tion and the mechanism of tâtonnement But with the counterexamples of Scarf

in 1960 literature on the stability of general competitive equilibrium abandons itsmost ambitious pretensions Therefore, Hahn and Negishi invoked in 1962 theimportance of integration of exchange mechanisms into the process For Negishi,

it is an opportunity to overcome the problem of integration of money to the ValueTheory Nevertheless, Negishi states that without money, the Hahn Process (thatwould allow exchanges to be possible outside of equilibrium) would be inconsis-tent with voluntary exchanges Perdomo argues that the history of the evolution ofthe Hahn Process shows the manifest fecundity of the history of economic thought

as a source of theoretical renovation In this regard and with respect to the limits ofthe analysis of equilibrium in successfully accounting for disequilibrium phenom-ena such as unemployment and crisis, Perdomo’s chapter reveals a Hahn Processessentially outside of WGE doctrine which could lead us to the renovation of mar-ket theory based on market processes where equilibrium would only be a referencepoint rather than the goal of economic theory

From an alternative point of view, Claude Gnos gives us, in Chapter 9, anappraisal of Keynes’s contribution to the analysis of the actual monetary econ-

omy When he was formulating the General Theory, in 1933, Keynes intended to

elaborate a “monetary theory of production” that would have been in sharp trast to the (neo) classical theory To that end, he opposed the monetary economy

con-of production that, according to him, is the actual economy, which he also called

an entrepreneur economy or a money-wage economy, to the real exchange omy depicted by his predecessors Moggridge, in his biography of Keynes, arguedthat Keynes could not achieve his goal, so he “dropped the whole notion as unable

econ-to do the job he wanted it econ-to – econ-to isolate the distinguishing characteristics of what

he called classical economics.” Then, Keynes would have turned to the analysis ofthe liquidity preference and the equilibrating role of fluctuations in output Gnos

Introduction 9aims in this chapter to show that although Moggridge’s argument has been com-monly shared by Keynesian writers, whether “Old” or “New,” it misses Keynes’scontribution to the theory of the actual economy The 1933 writings actually rep-resent a first step in the working-out of a monetary theory of production or, inmore appropriate words, a theory of the monetary economy of production that

Keynes will develop in the General Theory and in further writings Then Gnos

observes that the principle of effective demand falls within a theory of the etary economy of production and opposes Keynes’s definition of the productionfactors to Walras’s definition This opposition is a complementary evidence of thecontinuity of Keynes’s plans, continuity which can be checked with reference to

mon-the monetary analysis Keynes developed earlier in his Treatise on Money and later

on in his Proposals for an International Clearing Union.

Now standing on the shoulders of “high theory,” the rest of the book whichconstitutes the third part, is devoted to some theoretical proposals which are able

to contribute to the elaboration of an alternative monetary approach in order toapprehend the fundamental characteristics of the working of a capitalist economyand the roots of its malfunctioning

From this perspective, Fabrice Tricou focuses on the monetary nature of talism, in the tenth chapter, starting with a Walrasian economy (which is neithermonetary nor capitalist) and finishing with a Keynesian economy First, money isintroduced as the unit of account, as the general equivalent, and as the general-ized vehicle of autonomous expense, thus shaping a monetary market economy.Then, the ability to spend autonomously is restricted, reserved to capitalists whilewage-earners are defined by their monetary dependence Finally, the logic of accu-mulation (MCM’ scheme) is introduced and its motivation, rooted in the desire formoney, is examined So the monetary approach enables the assertion that capital-ism cannot be reduced to a market economy, because of the wage relation (whichdetermines workers as dependent agents) and because of the desire for money(which indefinitely fuels the pursuit of accumulation by capitalists) The openquestion is then the relation between these two elements, which belong to differentorders (structural economic organization and psychological economic profile) andwhich may seem independent Tricou remarks that thanks to the relevant notion ofmonetary dependence, the works of Benetti and Cartelier enable the subtle repre-

capi-sentation of wage earners as submissive agents or subordinate subjects However,

Benetti and Cartelier remain silent on the psychological aspects of money becausethey usually maintain that social science should be focused on a firm and observ-able object: what happens between separate entities connected by a common socialstructure; in other words objective social relations Conscious motives or uncon-scious forces in play should stay off the subject or beyond the scope because

of their external impenetrability or because of their soft solipsism But Tricoupoints out that the wage relation may be abstractly conceived without the desirefor money, assuming that capitalists are not moved by the desire of accumulationbut by the search for utility (or by the satisfaction of needs) Reversely, the desirefor money may be conceived without the wage relation, under the specific form ofpure speculation (commercial or financial) But this relative independence could

10 Introduction

be turned into a fruitful complementarity, following the vision of a “completecapitalism” combining an objective capitalist structure and a subjective capitalistmentality

To redesign a consistent theory of a monetary capitalism, Jean Cartelier siders, in Chapter 11, recent advances in monetary theory which should leadeconomists to reconsider the way they think about money Cartelier maintainsthat instead of trying to establish the conditions of neutrality (or super-neutrality)

con-of money, economists could re-examine the foundations con-of the theory con-of money

A basic proposition – money is memory – is accepted now as the cornerstone ofmonetary theory (even as a prerequisite for any proposition about neutrality) So

to Cartelier, such a formulation about “the technological role of money” is

mis-leading Taken literally it amounts to confusing money and capital Taken cum

grano salis it may be interpreted in a more interesting way: money performs in a

decentralized way what a central memory (Big Brother) realizes in a centralized

society, that is a social control over individual transactions If true, modern theorywould find again an old view which can be found in ancient authors (FerdinandoGaliani, to name but one) However, that basic proposition is valid only in a veryspecial case, the only one considered by Kocherlakota Moreover, that specialcase seems not to be consistent with decentralization Basically, modern abstracttheory of money turns a blind eye to money issuance An internal critique ofKocherlakota’s demonstration consists in showing that only a very special type

of issuance of money (helicopter money) is compatible with the idea that moneyacts as a decentralized memory In any monetary system (gold standard, creditmoney, etc.) money balances cannot be interpreted as a fair summary of individ-uals’ past transactions or past actions The importance of such a statement is thatthe immanent critique of modern abstract theory of money is a first step toward ageneralized theory A second step is to consider the fundamental concept of aca-demic theory, i.e “fiat money.” That concept is paradoxical: it makes sense onlybecause assuming money as a commodity (even special) means that one can use

in the analysis of money the same analytical tools, that are used in the sis of commodities (supply and demand, for instance) But the special propertiesattributed to money, in order to distinguish money from commodities, make it anon-commodity: fiat money is not an argument of utility or production functions,

analy-it is not privately produced, etc What makes analy-it a commodanaly-ity: to be an ary in exchange? But as far as that basic function of money is concerned, money is

intermedi-a substitute for intermedi-any other form of intermediintermedi-ation (stores, orgintermedi-anized mintermedi-arkets, etc.)

At this point it seems more natural to adopt an alternative view and to considermoney as an institution rather than a (whatever) special commodity Considering

money as an institution has no virtue per se but reminds us that it must be suited

to the society in which it is embedded, that is a market economy Then Cartelierargues that a market economy is characterized by three main features: decentral-

ization of actions, a posteriori coordination, and settlements of balances in order

to respect equivalence in exchange As an institution, money is a payment tem characterized by three (minimal) features or components, consistent with thespecifications of a market economy

Introduction 11The first feature is a nominal unit of account, a necessary condition for makingindividual actions known The unit of account is kept distinct from commodities(contrary to Free Banking theories which maintain that for monetary stability, theunit of account should be anchored to a set of commodities of which the histor-ical price evolution would be stable) The second feature is related to the factthat money is defined also by a minting process, i.e by some rules determiningthe amount of means of payment made available to agents in order to make theiractions effective in the market But in a decentralized economy, for each individual

in particular, a difference between receipts and expenditures generally arises (theequivalence principle is not spontaneously respected) Therefore a third feature,the settlement of balances, must enter the picture to restore the principle of equiv-alence in case of disequilibrium In the alternative theory outlined here, Cartelierargues that monetary regulation does affect the minting process, the settlement ofbalances (bankruptcy laws, accounting standards, etc.) and, also, in extreme cases,the unit of account Sovereignty is an integral part of money but not as a generaland undifferentiated power, not even as the power of the State but as a specificone, entirely designed by the specific features of the market economy (think forinstance of the so-called independence of central banks)

In a complementary way, Faruk Ülgen deals, in the twelfth chapter, with therole and the place of money in the process of coordination in a decentralized mar-ket economy Equilibrium models assume that coordination is carried out throughmarket mechanisms These mechanisms are mainly real and individual mecha-nisms but they seem to be unable to integrate money into theoretical construction.Ülgen then opts for a noticeably different method by taking money as the start-ing point of economic analysis in the aim of understanding economic phenomenathrough the monetary prism Ülgen shows why and how a monetary approachcould be envisaged as a coherent and plausible alternative theory of a marketeconomy This conceptual orientation brings to the fore the issues of monetaryambivalence and of permanent conflict between private/decentralized actions andthe systematic viability When studying the working of a decentralized marketeconomy, consisting of private and separate individuals who are driven by thesearch for net positive gain resulting from their decisions and actions, the coordi-nation of activities appears to be a prime issue Coordination refers to reasoning interms of the whole economy The aim is to conceive, at the same time, of the exis-tence of separate and private individuals, acting outside any collectively plannedand imposed objective, and of the existence of a society in which these individualsare positioned

Consequently, an economic approach in line with this issue should answer twoquestions: that of economic coordination guaranteeing the joint existence of sepa-rate acts and an all-encompassing society; then that of the compatibility/viability

of society in its ethical foundations (free and separate private acts) To answerthese two questions, the usual theory of economic equilibrium implies that coor-dination is provided by the market/prices by confronting individual supply anddemand and that compatibility is guaranteed by the existence of a stationary equi-librium, established through a normative conception, prior to effective exchanges

12 Introduction

between separate individuals However, the results obtained in this line of thoughtraise several difficulties crystallized in the impossibility of integrating money intoreal models Ülgen maintains that on the basis of these difficulties, the monetaryapproach offers, as a starting point, the notion of payment system/monetary rules(governing the creation, circulation and cancellation of private debts which cir-culate as general and public money) with a view to establishing the conditions

of consistent social coordination with the private and decentralized nature of themarket economy

The payment system works like an intermediate structure, external to als and also an element that is used to define them It determines the rules of thegame of possible individual actions and resulting sanctions that give private mon-etary relations a social character Then it appears that compatibility is not a resultpreviously given by a general equilibrium but remains a question, depending onthe possible directions the economy could take The rules of the system are thussupposed to include institutions and intervention and management rules of situ-ations of crisis which become the reflection of a macroeconomic incompatibility

individu-of microeconomic private actions The institutions and behavioral rules they vey need to appear to be external to private relations as they represent the wholesociety For example, the working of an arbitrational central bank, known to beoutside the system, is conceived in a vertical relationship to monetary and financialinstitutions as money needs to maintain its public/private ambivalence Monetaryambivalence and the permanent conflict between private means of existence andsystemic viability seem to be relevant ways to consider difficulties observed inmodern monetary economies in terms other than exogenous shocks or errors of afew scatterbrain decision-makers

con-In Chapter 13, Sergio Rossi offers a relevant analysis of structural factors mining financial instability and systemic crises Rossi points out that money iscrucial for the functioning, and malfunctioning, of any economic system Asalready pointed out by Hicks, the emission of money is always carried out by

deter-a third pole intervening in every pdeter-ayment between deter-a buyer deter-and deter-a seller Thetriad “money-banks-payments” is therefore really instrumental for any monetaryeconomies of production and exchange, domestically and across the borders: with-out this trinity, no economic system can exist Now, this trinity is necessary butnot yet sufficient in order to make sure that our economic systems work prop-erly The orderly working of any economic system requires that the structures ofmonetary, banking as well as payment systems respect the natural laws (that is tosay, those laws that depend on the nature) of money Therefore, Rossi points outthe structural flaws that originated the 2007–9 financial crisis and then elaborates

on a monetary-circuit approach, showing how banks have engaged in a number

of financial transactions that have nothing to do with the alleged channeling ofsavings to productive investment Consequently, Rossi draws some policy advicefrom this monetary-circuit approach, to reform the book-keeping structure withinwhich banks enter the result of the payments they carry out on financial markets.The aim of this structural reform is to prevent any systemic crises stemming from

Introduction 13those activities that banks and non-bank financial institutions carry out around theworld.

In Chapter 14, Edouard Cottin-Euziol asks if investment can solve the “paradox

of profit” in a monetary economy Following Louis-Philippe Rochon’s statementthat profit can exist within a single period when investment is financed by bankcredit issued on several periods, and starting from Kalecki’s profit equation,Cottin-Euziol rewrites Rochon’s equation on several periods in order to see if

it can explain profit over time Cottin-Euziol argues that investment financed bybank credit generates revenue without being directly considered as costs Theycan therefore explain how receipts of firms exceed their costs On the contrary,the repayment of bank credit financing investment is a cost, but does not createrevenue, as the money is destroyed So it increases costs, without being able toincrease receipts Consequently, they decrease profits Profit will then depend onthe balance between new investment financed by bank credit and the repayment ofpast credits In other words, investment financed by multi-period bank credit andstill not repaid makes profit If savings are added, investment financed by multi-period credit will have to be greater than the repayment of past credit and theincrease of savings to generate positive profit Investments can therefore generatepositive profits but nothing ensures whether it will be the case or the profits gener-ated will comply with those expected So, nothing guarantees that supply createsits own demand This is especially true when the reimbursements of credits aresignificant, because these are the ones that boost supply, through the increase inproduction costs, without increasing the demand Say’s law has therefore no rea-son to be borne out This solution uncouples the term of some bank credit withthe length of a period Current profit then depends on past investment financed

by bank credit So, current profit also depends on decisions made during the vious periods This solution leads to a dynamic study of the existence of profit.More generally speaking, it leads to study the dynamics of a circuit model withmulti-period credit Here the origin of profit is studied inside the production pro-cess A global view of the origin of profit would require considering public debt,household indebtedness, trade balance, etc Cottin-Euziol argues that these differ-ent contributions should lead to a better understanding of the rules regulating theworking of a monetary economy

pre-Guglielmo Forges Davanzati and Guido Tortorella Esposito devote the fifteenthchapter to relations between financial rents and wages through a Post KeynesianInstitutionalist approach and to their macroeconomic implications Forges Davan-zati and Tortorella Esposito deal with how emulation in consumption – bothbetween different groups of workers, and between workers and the leisure class –

is related to the real wage level through a theoretical model showing that lation plays a crucial role in setting what workers perceive as a “fair wage.” Thefair wage, in turn, is conceived as the wage level which allows the non-conflictcondition, thus generating the maximum work intensity and therefore the maxi-mum labor productivity In particular, Forges Davanzati and Tortorella Espositopoint out that the increase in rents produces a reduction of labor productivity in

14 Introduction

the event that firms are not in the position to increase money wages to a level responding to the (higher) level of the fair wage; and that the increase in wages onthe part of some firms (in particular large firms with a strong internal union and/orpublic firms) generates negative externalities – i.e reduction of productivity – atthe expense of smaller firms with no internal unions This can give rise to takeoverprocesses and, as a result, to the increase in the industrial concentration ratio.Forges Davanzati and Tortorella Esposito argue that the equality of the actual realwage and the fair wage can happen only by chance Even if one assumes that firmsfind it convenient to pay workers a fair wage (and that they know this value), thisoutcome can be reached only in a context where firms pay wages in real terms Ofcourse, this is an assumption which falls outside the realm of the monetary theory

cor-of production approach By contrast, in a credit economy – where firms advance

the money wages – the price level is set at the end of the circuit, implying that the

equality between the fair wage and the actual real wage can occur only by chance.The argument runs as follows Assume that both workers and firms know the level

of wages corresponding to the fair wage level, due to the prevailing social norms

If wages are paid in money terms, competition among firms is likely to determine

a price level which can fix the actual real wage below (or above) its fair level.Moreover, a policy of low money wages is profitable for the individual firm (aswell as for firms as a whole) insofar as it increases its competitiveness Other-wise, in normal circumstances, union action can affect money wages, not the pricelevel Finally, Forges Davanzati and Tortorella Esposito show that low wages andlow profits on the part of small firms are due to the behavior of banks, in particular

to credit rationing, and that, in this context, a negative relation between financialrents and labor share becomes evident

The last two chapters present some extensions of the monetary analysis cerning the meaning of money in a socialist economy and the renewal of theway of teaching economics when the monetary approach is used as an alternativetheoretical base for the understanding of capitalist economies

con-In Chapter 16, Guy Bensimon gives an analytical account of what money in

a socialist economy is As money is generally thought of as a market categorythen it would have no place in a socialist economy where market relations areabsent To deal with this issue, Bensimon builds a concept of money indepen-dent of any reference to market relations – following the concepts of money ofJames Steuart and John Maynard Keynes – which seems to be more suitable forthe socialist economy Therefore, Bensimon describes the main monetary relations

in the socialist economy, understood as an allocation economy where individualsand firms acquire the ability to possess goods as a result of a decision of theirsuperior, the allocator The principle of the decision to allocate the goods is “Tosuch individual, such goods for such use.” For this reason, the language used bythe different levels of the economic organization in their interactions is a lan-guage of nomenclature The money, designed as a money of account translatedinto an object, conveys the employment relationship and the relation by whichfirms acquire means of production Therefore, Bensimon maintains that the nature

of the coordination mode of a socialist economy precludes such an economy from

Introduction 15being considered as a monetary economy It nevertheless remains an economy

“monetized” since the money of account and payment relations have their place.Money is the money of account “materialized”; it is equivalent in value and sign

of wealth It conveys some socialist economic relations in the process of ing the allocation decision of consumer goods and in the phase of monitoring theimplementation of the allocation decision The nature of the allocation relation-ship implies, through a complex economic system, that the administrative bodies

prepar-at all levels have the ability to distinguish the goods through the use of a commonlanguage, the language of classifications, which is incompatible with the presence

of a nominal coordination mode of the economic system Thus, the properties ofthe allocation relationship print certain forms to the system of socialist economicrelations When money is not capable of running it, it is excluded This explains

at once the “monetized” character of the socialist economy and its character ofnon-monetary economy

The seventeenth chapter, offered by José Félix Cataño, considers a current andburning issue in economics in the aftermath of the 2007–9 worldwide crisis: themonetary approach and its effects on the teaching of economics through the expe-rience in Colombia Cataño states that once the monetary heterodoxy is known it is

no longer possible to teach economics as before In the history of economic ysis, a prior teaching of the weaknesses and criticisms of the real approaches – theclassic and neoclassic – is now imposed Likewise, the debate within the frame

anal-of the heterodoxies from Keynes to Marx is a requirement to be taught ever, Cataño remarks that teaching Marxism as an alternative has become moredemanding considering that now a Ricardian Marxism has to be discharged and

How-an alternative paradigm is needed Although the monetary approach seems to bemarginal in the context of dominant theoretical reflections on capitalist economies,

it introduces itself as an alternative to the general lines of thought about the ist system Cataño argues that his teaching experience has been modified followingthe monetary approach, a part of which is developed in this book, by its contribu-tion to deepen an analytic vision of the history of the economic theory whereforgotten ideas are valued and where new discussions are regained such as themerchandise socialization and the coexistence of symmetric and asymmetric rela-tions in the economic process In the same way, making an emphasis with respect

capital-to the work by Marx has allowed a fertile lecture of this legacy despite an adverseideological context From this perspective, Cataño shows a few lines of innovationthat have been made regarding the teaching of the history of economic analysis andthe theory of Marx in Colombia

Notes

1 It is worth noting that Matthieu Méaulle (from the FEPS) and Rémi Stellian (from theUniversity of Grenoble 2 and Distance University of Switzerland) have played a keyrole in the organization of the colloquium behind this book through their intellectual andhuman dynamism They were the kingpin of this outcome and should receive all mygratitude

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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 ference To quote but one opinion, that book may be viewed as “the symbol of

con-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 felicitousexpression? 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 tostomach today but for different reasons At the time of its publication, MSC poten-tial readers were familiar with Marx’s texts Marx’s thought was then an obligatoryreference among heterodox social scientists In France, most of current economicdiscussions were less analytical than ideological We had the strong desire tofree ourselves from the numerous misunderstandings characteristic of hot polit-ical debates and loose theoretical discussions In this view we deliberately chose

a new vocabulary without philosophical connotations and we did adopt a strictdeductive 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 Marxunderstood it, has almost totally disappeared from the intellectual scene What

“heterodox” economists invite us to do is to build a positive knowledge in order toprovide an alternative to mainstream economics More often than not, what theyadvocate is a multidisciplinary approach They aim at developing a better socialscience; they no longer have an intention to elucidate the general meaning of theexistence of social sciences, to investigate the very roots of economics, or to seri-ously inquire into economists’ pretension to science by means of a careful study

of what is going on in modern academic economics MSC radical orientation doesnot recommend it for present readers

Our ambition was to develop a pure economic theory – not what ciplinary is supposed to be about! – without pretending to rely on a “physicalobjectivity” – what severs it from hard sciences and makes very relative anyclaim to science Our refusal of a presupposed commodity-space (the so-called

multidis-hypothèse de nomenclature) and our suggestion to conceive of individuals as

20 Carlo Benetti and Jean Cartelier

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 (farfrom the illusions of micro-foundation)1to make it clear that economic theory is

a component of our society and that this very fact is a specific characteristic ofour 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 aremore facts to be explained than means of knowledge

Our approach may sound paradoxical and condemned to failure as Marx’s tique of political economy It is not possible to escape from the society in which

cri-we have been brought up and in which cri-we live, no more than it is possible to liftoneself in the air by drawing one’s bootlaces But it remains important to con-front a monetary analysis, as that proposed in MSC, which recognizes the relativeknowledge provided by economic theory, with the theories of value which claimthey belong to science Such a confrontation is an element of a critique of PoliticalEconomy 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 thepresent academic system

The notion of price gives a good illustration of the difficulty in following ourapproach Price is a central concept for almost all economists It is quasi impos-sible to ignore it without being accused of “intellectual autism.” But, at the sametime, it seems impossible also not to introduce a physical description of the com-modity 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 ourtheory? Let us answer in a pragmatic way and avoid too general methodologicaldebates 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 valueapproaches 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 theproblem dealt with.2If 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 themonetary 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

After thirty years 21

“the hidden abode of production”) Both matrices have the same trace, nant, and eigenvalues This result is obtained free of any consideration for usevalues and prices

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 yetrigorously applied because of some assumptions most of them accept A mon-etary approach appears to be more adapted to deal with it Let us take justone example Many years after MSC we have sketched the solution to the fun-damental problem of value raised by Marx, that of the contradiction betweenabstract labor and concrete labor An immanent critique of Marx’s solution,restoring the logical consistency of his argument, leads to eliminate labor as aninappropriate notion and to replace it by monetary evaluations.3A critique ofthe same type could and should be developed concerning the present state ofvalue theory But mainstream economists and their critiques neglect to inquireinto 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 factthat all individuals are related through money payments does not mean that theyhave 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 aview to a maximum profit in a context of world competition between capital-ists If among entrepreneurs and capitalists market relations are the rule, betweenentrepreneurs and wage-earners another relation exists We call it waged rela-

tionship (rapport salarial) Most theoreticians take it for granted that waged

relationship is a market relation, although specific They do not realize that othertypes of production would be conceivable Producers (people having a directaccess to money) could freely decide to create collective organizations of produc-tion, each of them being on a same footing (internal organization and hierarchy

22 Carlo Benetti and Jean Cartelier

could be democratically decided) In such an economy there will be no wagedlabor but only independent and/or associate producers having market relations

By contrast, waged relationship is not and cannot be a market relation As a ter of fact, in our economies, waged relationship is the condition for production toexist and market relations to take place

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

Treating the two themes above simultaneously, as it is done in MSC, permitsavoidance of two important pitfalls The first one is to consider money as a specialcommodity and to deal with it accordingly Money becomes an optional com-modity: it may not exist if another technique of transaction (typically barter)

is available and preferred (money has a zero price in this case) Pure moneytheory 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 marketeconomy Consequently critique of market and critique of capitalism are not to

be distinguished (think of the political and philosophical issues at stake) and animportant 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 theirfurther 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 Themonetary approach is far from its objectives A specific way of dealing withdynamics has been explored, the viability approach (the mathematical apparatus isdue to Jean-Pierre Aubin 1997) Although it is free from the well-known problemsresponsible 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 thestory 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 equivalent monetary relation, two kinds of advances may be noted On the onehand, it has been shown that Keynes’s conjecture (the existence of a general com-petitive equilibrium with flexible prices and involuntary unemployment) holds true

non-a necessnon-ary (but not sufficient) condition being the existence of non-a wnon-aged relnon-ation-ship radically different from a market relation (Cartelier 2003) On the other hand,

relation-a model of differentirelation-ation between entrepreneurs relation-and wrelation-age-erelation-arners hrelation-as been elrelation-ab-orated, founded on an unequal access to money (Cartelier 2010) MSC thesis thatwaged relationship is a relation of monetary submission, which makes it distinctfrom a market relation, has now a more sophisticated expression allowing, we may

After thirty years 23

hope, to facilitate a discussion with theoreticians unfamiliar with the monetaryapproach but interested by its results

As far as money is concerned, our views have evolved thanks to tions with modern academic theory But basic ideas remain valid Money we have

confronta-in mconfronta-ind is not money confronta-in general, money sans phrase, but money confronta-in a market

economy.4The 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 uals through the market This set has three elements: a nominal unit of account, a

individ-minting process, and a procedure of balances settlement, and should be sufficient

to build a model of market process5(some work is in progress) That this moneytheory 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 theconfrontation with the recent advances of academic theory

What basically makes the difference between a MSC-type approach and

aca-demic 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 compati-

ble 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 method-ological position than an analytical necessity It comes from a critical analysis

of economic theory that is of what history of thought has identified as cal Economy In that, Cantillon’s rule (or Shapley-Shubik’s rule) plays a majorrole Shapley-Shubik’s rule does not make sense except in a monetary economy

Politi-It determines prices whether equilibrium is obtained or not Politi-It is an indispensableingredient of a model of a monetary market process.6

In spite of the fact that MSC considers the economic disequilibrium as acentral topic of economic theory, it does not say a single word about the prob-lem of change and, as a consequence, about dynamical processes Some recentinvestigations (where the hypothesis of a given commodity-set is added to themonetary rules) have tried to fill this gap, at least partially (C Benetti; Ch Bidard;

E Klimovsky and A Rebeyrol) They study disequilibrium situations and theirdynamics in a bisector economy with a linear and single product technique Such

an economy can also be considered as the productive sector of a macroeconomicmodel in which some important issues such as the structure of the production andrelative 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 expectedprofits are devoted to investment, capitalists calculate their production plans Thequantity of money representing the monetary value of these plans is provided bythe bank through the minting process Market prices and the allocations of themeans of production are determined by Cantillon’s rule

The economic disequilibrium is both real and monetary (capitalists are sidered as individual accounts) and the commodity which is under-evaluated isdefined as “scarce.” The balance settlement is made through the appropriation bythe creditor of a part of the real capital of the debtor whose value at the market