Money and Markets: A Doctrinal Approach, Oxon and New York: Routledge, 2007, pp. 252.

　　　　　　　　　　　　　　　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 19^th 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 16^th 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 20^th 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.

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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.