On Marx's Analysis of Money Hoarding in the Turnover of Capital

The formation of money hoards, which underpins the demand for money, is typically treated by mainstream monetary theory as originating in the motives of the rational individual. In contrast, Marx's discussion of money hoarding treats hoard formation as a necessary tendency of capitalist production and circulation rather than as a result of the individual's predilections. Based on Marx's analysis, this article identifies several structural reasons for money hoard formation in the circuit of capital. It is also shown that Marx's discussion, despite its insight, suffers from a technical error in analysing the overlapping of production and circulation time in the circuit, and in drawing the implications for hoarding. Finally, it is argued that the broader significance of capitalist money hoarding lies in the foundations it provides for the emergence of the credit system.     

The Monetization of Profits in a Monetary Circuit Framework

Abstract

This paper offers an explanation of the realization of profits in money. Following Edward Nell's lead, we place Marx's spheres of production and circulation at the centre of the analysis. Production is represented à la Sraffa–von Neumann while circulation is analysed following the basic insights of the Franco-Italian theory of the monetary circuit. Once production has taken place, money is created by banks ex nihilo and then circulates through certain channels allowing the reproduction of the system and monetizing profits plus the payment of interest on long-term debts within one single circuit. The novelty of our approach lies in the treatment of the financing of investment in fixed capacity.     

The Emergence of Money in Commodity Exchange,or Money as Monopolist of the Ability to Buy

Abstract

Money's emergence in commodity exchange remains an unresolved issue within economic theory. Current general equilibrium models offer an explanation that rests on the economic advantages of a universally accepted means of exchange that is partly established through social custom. These models neither fully explain money's unique ability to buy, nor theorise the customary practices required for money's emergence. They are dominated by Menger's earlier analysis of money's emergence, which pays more attention to the social foundations of money but is still hampered by Austrian individualism. An alternative explanation is given here, drawing on Marx's theory of value but involving a thorough reworking of it. An analytical process is established through which money finally emerges as monopolist of the ability to buy. Particular social custom, whose determinants are consistent with the social underpinnings of commodity exchange, plays a vital role in money's emergence.     

The Emergence of the Law of Value in a Dynamic Simple Commodity Economy

Abstract

A dynamic computational model of a simple commodity economy is examined and a theory of the relationship between commodity values, market prices and the efficient division of social labour is developed. The main conclusions are: (i) the labour value of a commodity is an attractor for its market price; (ii) market prices are error signals that function to allocate the available social labour between sectors of production; and (iii) the tendency of prices to approach labour values is the monetary expression of the tendency of a simple commodity economy to allocate social labour efficiently. The model demonstrates that, in the special case of simple commodity production, Marx's law of value can naturally emerge from multiple local exchanges and operate ‘behind the backs’ of actors solely via money flows that place budget constraints on their local evaluations of commodity prices, which are otherwise subjective and unconstrained.     

Disequilibrium as the origin,originality, and challenges of Clower's microfoundations of monetary theory

Abstract

Robert W. Clower's article “A Reconsideration of the Microfoundations of Monetary Theory” (1967) deeply influenced the course of modern monetary economics. On the one hand, it questioned Don Patinkin's (1956) project to integrate monetary and Walrasian value theory. On the other hand, it was the fountainhead of the cash-in-advance models à la Robert J. Lucas (1980), one of the most widely used approaches to monetary theory since the 1980s. Despite this influence, Clower's project to integrate monetary and value theory remains an enigma. My paper intends to resolve it. This is a difficult task since Clower never completed the monetary theory outlined in his 1967 article. To overcome this difficulty, I characterise the intellectual context from which Clower's contribution emerged and have recourse to a reconstruction of his project. This reconstruction is based on the analysis of published and unpublished materials, written by Clower before and after the 1967 article. It is argued that Clower sought to elaborate a disequilibrium monetary theory whilst retaining the two pillars of Patinkin's integration, i.e., the introduction of money into utility functions and the real-balance effect. I trace the origins, account for the originality, and discuss the challenges of this project.     

The Role of credit in a Keynesian monetary economy

Abstract

This paper describes the features of a monetary economy on the basis of Keynes's distinction between a real exchange economy and a monetary economy. In The General Theory, Keynes identifies the reasons for the non-neutrality of money by highlighting the store of wealth function of money; this approach has been adopted by most Keynesian economists. The aim of this paper is to show that such an approach only partially explains the reasons for money non-neutrality and that important elements which demonstrate the relevance of monetary variables emerge when the means of payment function of money is considered. Investigating the role of this function requires that we deal explicitly with how spending decisions are financed. The paper argues that the market for credit must be considered separately from the market for money, and that a viable credit theory can be built from Keynes's post-General Theory writings.     

James Steuart and the making of Karl Marx’s monetary thought

Abstract

This paper analyses the influence of James Steuart on Karl Marx’s monetary thought. It deals more specifically with Marx’s rejection of an automatic mechanism that links variations in the quantity of money to their direct impact on prices. Steuart’s pioneering discoveries in economics inaugurate an anti-quantity theory tradition that Marx supported and which fed his own conception of money and credit. Here, we deal with the criticism of the assumptions of the quantity theory of money (QTM), the specifically social character of labour which creates exchange value, the distinction between the functions of money, the difference between income spending and capital advances, and the difference between simple circulation and reflux of money credit.     

Screpanti versus Marx on exploitation: a comment

Abstract

Ernesto Screpanti recently claimed to prove that Marx's value theory is logically inconsistent. Jettisoning the value theory, he then reconstructed Marx's theory of exploitation in a manner that supposedly preserves the gist of the original. This note shows that Screpanti's proof of inconsistency is invalid and that his reconstruction contradicts the original theory of exploitation in significant ways, for instance by implying that workers who perform surplus labor can exploit capitalists.     

Parametric external economies and the Cambridge controversy on returns

Abstract

When French economists read The Purchasing Power of Money, they were primarily interested in the equation of exchange and the reformulation that Fisher proposed regarding the quantity theory of money. This reading led them to ponder the meaning that should be given to this theory and to study its empirical significance. Some of them, namely Rueff and Divisia, went further still and considered Fisher's work as a starting point for their own analyses, which were related in particular to the monetary index, the integration of money into general equilibrium theory and the analysis of monetary phenomena in an open economy.     

Fisher and Wicksell on money: A reconstructed conversation

Abstract

The paper offers a reconstruction of the ‘conversation’ between Irving Fisher and Knut Wicksell on money as shown by references they made to each other's works. The first phase corresponded largely to the period between 1897 and 1911, when they proposed different explanations of the interaction between interest and prices, and incorporated aspects of each other's approaches into their own respective frameworks. This was followed by Wicksell's extended criticism of Fisher's compensated dollar plan and his bewilderment at its apparent lack of relation with the quantity theory of money (1912–1919). Finally, especially after Wicksell's death, Fisher came to support a significant part of Wicksell's monetary policy proposals, particularly in connection with the Swedish stabilisation experiment in the early 1930s. Fisher and Wicksell were both heirs of Böhm-Bawerk's interest theory, but interpreted and criticised the Austrian from different perspectives, which helps to explain the differences in their approaches to monetary dynamics.     

Cambridge's Contribution to Endogenous Money: Robinson and Kahn on credit and money

It is often claimed by American Post Keynesians that the theories of endogenous money originated in the mid-1950s as a result of articles published by Nicholas Kaldor and Hyman Minsky. This paper offers another possibility. It argues that, in the mid-1950s, both Joan Robinson and Richard Kahn offered insights into the workings of a credit economy that have been largely ignored by Post Keynesians and that are consistent with Post Keynesian monetary theory.     

A Thoroughly Embodied Economics: A Review of Personalist Economics by Edward J. O'Boyle

In a debate on the future of monetary policy and the displacement of money, Woodford argued that, even if innovations should lead to a situation in which the banks' demand for reserves at the central bank is zero, the central bank can still influence the economy's interest rates because its liability is the economy's unit of account. This paper deals with these topics by considering the implications of emphasizing the function of money as unit of account. In the analysis of money from this perspective, social, institutional and economic factors play a crucial role. Money is a social and historical relation. Therefore, the displacement of money and central banks, though possible, is a complex process involving economic, social and political factors, not merely the result of innovations. The paper also looks at some aspects of Kaldor's theory, which is centered on the fundamental importance of money as unit of account.     

The Significance of the Monetary Context of Economic Behavior

The dominant paradigm in economics views economic behavior as allocative activity in a neutral, C-M-C' economy. As a consequence, money is treated as a veil that is inessential to the real functioning of the economic system. This paper argues that one of Keynes's fundamental insights is the significance of the monetary context of economic behavior. This insight has been developed by the post-Keynesian theory of money as a "time-machine vehicle" that provides the causal link between uncertainty and unemployment. The Circuitist theory of money as the means of final payment provides a complementary radical perspective on the significance of the monetary context. This paper investigates the methodological and theoretical implications of these radical monetary theories and assesses their contribution towards the development of a general theory of a monetary production, M-C-M' economy.     

Marx's Legacy,Régulation Theory and Contemporary Capitalism

ABSTRACT

The 2008 financial crisis has challenged the merits of standard economic theories and sparked surprising references to Marxist analyses. A monetary economy is prone to crises, the interaction of competition with capital–labour relations launches relentless accumulation and over-accumulation crises exacerbate the built-in contradictions of the capitalist mode of production. Nevertheless, until now, these imbalances have not unfolded into its rapid and complete collapse. From the social and political struggles of labour and citizens, the 1929 crisis and finally the Second World War, new configurations emerge for the wage–labour nexus, the form of competition and the monetary and credit regime. These delineate an unprecedented accumulation regime, Fordism. In turn, Fordism enters a structural crisis and a dramatic change in institutionalized compromises favours a still different accumulation regime (finance-led) that evolved from one speculative boom to another till the 2008 American financial collapse. Thus the mobilization of Marx's foundational hypotheses by Régulation theory allows a better understanding than most alternative theories of major contemporary stylized facts: productivity slow-down and social polarization in mature economies, tensions between capitalism and democracy, new industrial capitalisms and limits to globalization.     

On the monetary nature of the interest rate in a Keynes–Schumpeter perspective

Abstract

Keynes, in the General Theory, explains the monetary nature of the interest rate by means of the liquidity preference theory. The objective of this article is twofold. The first objective is to point out the limits of the liquidity preference theory. The fundamental limitation of this theory is that it does not allow to realize the intent declared by Keynes in 1933 to elaborate a monetary theory of production The second objective is to present a more solid theory of the monetary nature of the interest rate. It will be shown that an essential element of this explanation is Schumpeter’s analysis of the role of bank money in a capitalist economy. In fact, this analysis represents a fundamental tool to explain the characteristics that, according to Keynes, distinguish a monetary economy from a real-exchange economy     

Carl Menger and the network theory of money

Carl Menger has occasionally been cited as a forerunner to the network theory of money. This article analyses Carl Menger's monetary theory and evaluates whether he was aware of the network characteristic of money from a retrospective angle. The result is mixed. Menger is one of the first to discuss the marketability and liquidity of an asset, which in German he denotes Absatzfähigkeit. This concept has a strong connection with the network aspect of a commodity. However, he is not distinct enough in his analysis and there is a lack of depth in his understanding.     

Of clouds and clocks and Keynes: conceptions of reality and the growth of knowledge function of money ∗

In this paper, John Maynard Keynes' General theoryand the concept of money are given an evolutionary interpretation. This interpretation is based on Karl Popper's delightful essay ‘Of clouds and clocks: an approach to the problem of rationality and the freedom of man’. The essay presents two things: Popper's conception of indeterminism and his general theory of abstractions. Popper's general theory concerns the role of abstractions and rule-governed, hierarchical systems of abstractions in structuring an indeterministic and uncertain world. He applies his general theory to science.Popper maintains that science is an abstract, rule-governed, linguistic process that facilitates criticism as a way of learning about our world. Popper calls this the growth of knowledge function of science. Popper's general theory can be applied to Keynes' General theory. Following Popper, I argue for a conception of the economy as a rule-governed, monetary language of commerce that facilitates critically minded inquiry in the domain of ordinary economic transactions. A monetary system facilitates the growth of commonsense knowledge in the economy. I call this the growth of knowledge function of money. An awareness of indeterminism and a growth of knowledge like function of money seem to pervade Keynes' General theory.     

Marx's analysis of the falling rate of profit in the first version of Volume III of capital

Abstract

This paper provides an analysis of the Hodgskin section of Theories of Surplus Value and the general law section of the first version of Volume III of Capital. It then considers Part III of Volume III, the evolution of Marx's thought and various interpretations of his theory in the light of this analysis. It is suggested that, as late as the 1870s, Marx had hoped to be able to provide a demonstration that the rate of profit must fall. The main conclusions are that (1) Marx's major attempt to show that the rate of profit must fall occurred in the general law section, (2) Part III does not contain a demonstration that the rate of profit must fall and (3) Marx was never able to demonstrate that the rate of profit must fall and he was aware of this.     

Marx on Ricardo: an explanation of some important misunderstandings

Ricardo's theory of value and distribution is reconstructed by proceeding along the lines of Marx's critique of Ricardo. It is thus an anti-critique of Marx's reading of Ricardo. The chapter ‘On Value’ in Ricardo's Principles is shown to be a consistent and rigorous treatment of the determinants of prices of production. According to Ricardo labor-values merely serve to approximate more elaborate standards of value. Marx's criticism is shown to rest crucially on his own misinterpretation of Ricardo's definitions and presupposes his own – faulty – theory of surplus value. Therefore Ricardo's theory can – contrary to Marx's theory of surplus value – still be regarded as a fruitful complement to Sraffa's model.