Alberto Giacomin and
Maria Cristina
Marcuzzo (eds.),
Money and
Markets: A Doctrinal Approach,
Oxon
and New York :
Routledge, 2007, pp. 252.
Toshiaki
Hirai
(Sophia
University , Tokyo )
The
book is a collection of selected papers from those read at the 2004 ESHET
conference.
“What is money and what is market? How should
we understand the relation between the two?” – these are fundamental questions
for us. In the Seng period (China ),
the Edo period (Japan ),
to take a few, markets fully developed where goods were exchanged for money.
The history of economics as social science,
however, has no more than 230 years. classical economics ruled the roost in the
first half of the 19th century, followed by neoclassical economics from
the third quarter of the century even to the present day.
As alias of neoclassical economics, “catallactics”
shows, it focuses the research object on markets where economic agents buy and
sell goods. It is the general equilibrium theory (GE) by Walras which was to
occupy a central place in neoclassical economics. It is a system in which money
does not work, so the quantity theory of money was adopted as monetary theory
in order to adapt itself to the real world. This system has dominated the
economics field over many years. Moreover, the so-called New Classical
Macroeconomics (NCM), similar to the above system in some sense, has ruled the
roost over these thirty years in the macroeconomics field.
1.
Presentation of Alternative Theories
What attracts the reviewer most are six
papers in support of theories which try to grasp an economic system from
alternative points of view, criticizing the paradigm of GE and/or NCM.
In Chapter 2 Goodhart criticizes NCM, arguing that because it tries to
construct economic models based on assumptions in negligence of the reality, it
is empirically absurd, losing relevance to the real world. He supports the
direction at which Shubik aims, combining theory with the empirical realism. In
Chapter 3 Davis
stresses ‘socially embedded individuals as a network conception’ envisaged by
the complexity theory, different from individuals envisaged by GE and those by
the game theory.
In Chapter 4 Israel appeals to reinstatement of ‘genuine’
game theory. He criticizes that the axiomatic methodology adopted by GE does
not explain the actual economic phenomenon and. what is more, economics was to
move into a wrong direction due to (i) the elaboration of GE by Debreu; (ii)
the tendency of the game theory to be incorporated into GE through ‘Nash
equilibrium’; (iii) the argument that cooperative games can be reduced to
non-cooperative ones. Israel
insists that the ‘genuine’ game theory based on cooperative games at which von
Neumann and Morgenstern aimed at establishing should be pursued.
In Chapter 5
Heinsohn and Steiger advocate property economics, criticizing the view on the
relation between money and markets by classical and neoclassical schools that “First
markets emerged. Then money came into being to reduce transaction cost”. They
argue that the right of possession is the source from which money and markets are
derived, stressing the right of possession - a legal right based on which its
possessor is endowed with non-physical right - in all types of economic
activities including the right of issuing money, the right of getting
(borrowing) money.
In Chapter 6, “Money and markets as twin
concepts?”, Cartelier answers “in the case of Arrow-Debreu and Neo-Walrasian
models the answer should be ‘no’, while in the case of ‘monetary approach’
represented by Shapley-Shubik ‘yes’”.
In GE
transaction can be made only in equilibrium and there is no place for money. In
the 1970s, moreover, it was proved that Arrow-Debreu model might not retain
equilibrium and the global stability – the Sonnenshine-Mantel-Debreu theory. Then,
modeling of GE under disequilibrium was pursued – the Neo-Walrasian model which
reveals the dichotomy between price determination and transaction realization.
In both models
Cartelier sees the divergence from the actual markets and rather esteems the ‘monetary
approach’ by Shapley and Schubik without this shortcoming.
In
Chapter 10 Spahn emphasizes money as a social bookkeeping device, pointing out
the following elements of truth in the market economy: (i) the principle of
efficiently guided incentives; (ii) the necessity of money as a medium of
payment which results from a lack of information and mutual trust; (iii) a
social mechanism or convention that ensures the overall acceptance of money. Although
the view was to lose its reputation due to the prevalence of GE, Spahn pleas to
pay attention to it.
To sum up, the
above chapters share in common that the method of analysis in the orthodox
economics suffer from fatal shortcomings in analyzing the actual economy.
2.Various Aspects of Economists
Next
we will turn to the chapters which focus on certain economists.
2.1
Certain Theoretical Thought
In Chapter 9 a reappraisal of Jean
Bodin, French thinker in the 16th century, is made from a point of
view of his theory of money. Blanc argues that Bodin should not be regarded as
the founder of the quantity theory of money and that his originality lies in
aiming at constructing an ideal system - a part of his theoretical system of
sovereignty - which is intended to avoid all forms of false money.
In Chapter 12 a reappraisal of Adam Smith’s
theory of money is made. So far Smith’s theory has been regarded as a convertible
paper money theory. Giacomin emphasizes that it should be evaluated rather as an
inconvertible paper money theory. Smith got this inspiration from the monetary
system in Pennsylvania, America .
Then come two chapters focused on Keynes’s
ideas.
In Chapter 7
Rossi firstly states that the international monetary system should be reformed
along the International clearing union plan (the Keynes plan). He then argues
that the Keynes plan pays attention only to the ‘money purveyor’ in negligence
of the ‘credit purveyor’, and the creation of a genuine monetary system
requires two divisions (Rossi stresses Schumacher’s remarks on the Keynes
plan).
In Chapter 8, “Price
and prejudice”, Simoazzi and Vianello, referring to the deflation which
afflicted the Japanese economy, focus on how ‘prejudice’ that downward
flexibility of money wages (and prices) can bring about full employment has
survived Keynes’s criticism. The contributors, based on the ‘dynamic’ argument
in chapter 19 of the General Theory,
criticize the ‘static arguments’ (‘prejudice’) developed later, saying that the
static arguments neither addresses the present economic situation nor put
forward economic policies to be implemented.
In Chapter 13
Lavington, an economist in the interwar Cambridge ,
is taken up. Dangel-Hagnauer and Raybaut emphasize that Lavington’s fundamental
view on the market economy is that money exists from the very beginning and
economic agents has a limited capacity to see through the future. Lavington
sees entrepreneurs as the most important economic agents. They make business
activities under the opacity of the situation in which the future is evolving
from the present. He sees that this ‘incalculability’ induces ‘risk and
uncertainty’. It is well known that he distinguishes risk (decrease in
efficiency of production) from uncertainty (irregularity of incomes).
Lavington, moreover, argues that the market
economy, as compared with state socialism, brings about effective production,
while as many entrepreneurs make business activities independently, the
adjustment in the markets faces uncertainty so that the market economy can not
prevent individual incomes from fluctuating.
In Chapter 14 Marco
Fnno, an Italian economist in the first half of the 20th century, is
taken up.
The theory of
cumulative process developed by Wicksell had a great influence on theoretical
economics in the interwar period. It should be worth stressing, as Spiller and
Pomini argue, that Fanno put forward his own theory of business fluctuations as
early as 1912, succeeding Wicksell’s theory critically.
After WW2
Fanno turned his focus on economic growth. He analyzed economic growth, using
the concept of a ‘progressive economy’ and distinguishing three kinds of growth
lines. Fanno, accepting ideas similar to Harrod and Keynesian analysis of
economic fluctuations by means of an accelerator factor and multipliers,
developed his own analysis adding changes in income distribution.
2.2 Way of Life
In Chapter 11,
as the subtitle shows, John Law as art collector, monetary theorist and
corporate financier is take up.
Law, who was
sentenced to death in relation to the duel, flew from London to the Continent,
where he came to show interest in the banking system in Italy and the Netherlands.
Soon he worked out and sent his financial proposal, which argues that money is
not regarded as possessing intrinsic value, and that in case of lack in money
the government can vitalize the economy by printing paper money, to several
governments. The proposal was accepted by France - the Law System. It came to
end with the Mississippi bubble and Law fled
to Venice .
Murphy argues
that because of his financial innovation on money and the capital market he
might as well be called the father of corporate finance.
During his stay at Venice , Law collected a lot of arts. Murphy
describes Law as having keen appreciation, with interesting episodes.
In
Chapter 15 Ezra Pound, who was a Fascist and anti-Semite who would have almost been
executed by the US ,
is taken up. He came to have interest in money influenced by Silvio Gesell.
Concerning banking, however, he came to criticize harsher and harsher as time went
by. Pound insisted that interest should be kept zero, and the state should
accomplish full employment by printing money.
***
The
book collects papers which show a wide variety of views on “Money and Markets”.
The reader, among others, sees several new attractive theories which he or she
might know them further form the references.