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ROUTLEDGE INTERNATIONAL STUDIES IN MONEY AND
BANKING

New Contributions to
Monetary Analysis
The foundations of an alternative
economic paradigm
Edited by
Faruk Ülgen

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New Contributions to Monetary Analysis

In the wake of the 2007–8 economic crisis, the need for an alternative paradigm to
the mainstream real (non-monetary) equilibrium paradigm gains even more importance, in the same way as some authors (including Keynes) were insisting on a
renewal in economic theory in relation to the crisis of the 1930s. The monetary
approach developed in this book maintains that money – as a set of defined rules
and practices – is the basic institution without which no capitalist economy can
be understood. This approach can give rise to a consistent alternative paradigm to
deal 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 of
modern research on money as well as the origins of analytical ambiguities that
dominate contemporaneous debates on monetary issues. The book then develops


the monetary approach in terms of the monetary constituents of capitalism, the
payment system, the coordination issue in a decentralized market economy and
the ambivalence of money, financial instability, the paradox of profit in a monetary
economy, the conflict between financial rents and wages, money in a socialist
economy, 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 monetary
analysis which offer a theoretical framework for a renewed monetary approach
and related policy extensions. It points to recent research on what a consistent
and broad-scope monetary theory could be based on in the twenty-first century.
It highlights new interpretations of monetary theory as put forth by some leading
economists since the eighteenth century and new developments in the analysis of
current monetary issues.
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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Routledge International Studies in Money and Banking

1 Private Banking in Europe
Lynn Bicker

2 Bank Deregulation and
Monetary Order
George Selgin
3 Money in Islam
A study in Islamic political
economy
Masudul Alam Choudhury
4 The Future of European
Financial Centres
Kirsten Bindemann
5 Payment Systems in Global
Perspective
Maxwell J Fry, Isaak Kilato,
Sandra Roger,
Krzysztof Senderowicz,
David Sheppard, Francisco Solis
and John Trundle
6 What is Money?
John Smithin
7 Finance
A characteristics approach
Edited by David Blake
8 Organisational Change and
Retail Finance
An ethnographic perspective
Richard Harper, Dave Randall
and Mark Rouncefield

9 The History of the Bundesbank
Lessons for the European Central

Bank
Jakob de Haan
10 The Euro
A challenge and opportunity for
financial markets
Published on behalf of Société
Universitaire Européenne de
Recherches Financières (SUERF)
Edited by Michael Artis,
Axel Weber and
Elizabeth Hennessy
11 Central Banking in Eastern
Europe
Edited by Nigel Healey and
Barry Harrison
12 Money, Credit and Prices
Stability
Paul Dalziel
13 Monetary Policy, Capital Flows
and Exchange Rates
Essays in memory of Maxwell Fry
Edited by William Allen and
David Dickinson
14 Adapting to Financial
Globalisation
Published on behalf of Société
Universitaire Européenne de
Recherches Financières (SUERF)
Edited by Morten Balling,
Eduard H. Hochreiter and

Elizabeth Hennessy

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15 Monetary Macroeconomics
A new approach
Alvaro Cencini

24 Financial Market Risk
Measurement and analysis
Cornelis A. Los

16 Monetary Stability in Europe
Stefan Collignon

25 Financial Geography
A banker’s view
Risto Laulajainen

17 Technology and Finance
Challenges for financial markets,
business strategies and policy
makers
Published on behalf of Société
Universitaire Européenne de
Recherches Financières (SUERF)
Edited by Morten Balling,

Frank Lierman, and
Andrew Mullineux

26 Money Doctors
The experience of international
financial advising 1850–2000
Edited by Marc Flandreau
27 Exchange Rate Dynamics
A new open economy
macroeconomics perspective
Edited by Jean-Oliver Hairault
and Thepthida Sopraseuth

18 Monetary Unions
Theory, history, public choice
Edited by Forrest H Capie and
Geoffrey E Wood

28 Fixing Financial Crises in the
21st Century
Edited by Andrew G. Haldane

19 HRM and Occupational Health
and Safety
Carol Boyd

29 Monetary Policy and
Unemployment
The U.S., Euro-area and Japan
Edited by Willi Semmler


20 Central Banking Systems
Compared
The ECB, The pre-Euro
Bundesbank and the Federal
Reserve System
Emmanuel Apel

30 Exchange Rates, Capital Flows
and Policy
Edited by Peter Sinclair, Rebecca
Driver and Christoph Thoenissen

21 A History of Monetary Unions
John Chown
22 Dollarization
Lessons from Europe and the
Americas
Edited by Louis-Philippe Rochon
and Mario Seccareccia
23 Islamic Economics and
Finance: A Glossary, 2nd
Edition
Muhammad Akram Khan

31 Great Architects of
International Finance
The Bretton Woods era
Anthony M. Endres
32 The Means to Prosperity

Fiscal policy reconsidered
Edited by Per Gunnar Berglund
and Matias Vernengo
33 Competition and Profitability in
European Financial Services
Strategic, systemic and policy
issues
Edited by Morten Balling,
Frank Lierman and
Andy Mullineux

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34 Tax Systems and Tax Reforms
in South and East Asia
Edited by Luigi Bernardi,
Angela Fraschini and
Parthasarathi Shome
35 Institutional Change in the
Payments System and
Monetary Policy
Edited by Stefan W. Schmitz
and Geoffrey E. Wood
36 The Lender of Last Resort
Edited by F.H. Capie and
G.E. Wood
37 The Structure of Financial

Regulation
Edited by David G. Mayes
and Geoffrey E. Wood
38 Monetary Policy in Central
Europe
Miroslav Beblavý
39 Money and Payments in
Theory and Practice
Sergio Rossi
40 Open Market Operations and
Financial Markets
Edited by David G. Mayes
and Jan Toporowski
41 Banking in Central and Eastern
Europe 1980–2006
A comprehensive analysis of
banking sector transformation in
the former Soviet Union,
Czechoslovakia, East Germany,
Yugoslavia, Belarus, Bulgaria,
Croatia, the Czech Republic,
Hungary, Kazakhstan, Poland,
Romania, the Russian Federation,
Serbia and Montenegro, Slovakia,
Ukraine and Uzbekistan
Stephan Barisitz

42 Debt, Risk and Liquidity in
Futures Markets
Edited by Barry A. Goss

43 The Future of Payment Systems
Edited by Stephen Millard,
Andrew G. Haldane and
Victoria Saporta
44 Credit and Collateral
Vania Sena
45 Tax Systems and Tax Reforms in
Latin America
Edited by Luigi Bernardi,
Alberto Barreix, Anna Marenzi
and Paola Profeta
46 The Dynamics of Organizational
Collapse
The case of Barings Bank
Helga Drummond
47 International Financial
Co-operation
Political economics of compliance
with the 1988 Basel Accord
Bryce Quillin
48 Bank Performance
A theoretical and empirical
framework for the analysis of
profitability, competition and
efficiency
Jacob Bikker and Jaap W. B. Bos
49 Monetary Growth Theory
Money, interest, prices, capital,
knowledge and economic structure
over time and space

Wei-Bin Zhang
50 Money, Uncertainty and Time
Giuseppe Fontana
51 Central Banking, Asset Prices
and Financial Fragility
Éric Tymoigne

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52 Financial Markets and the
Macroeconomy
Willi Semmler, Peter Flaschel,
Carl Chiarella and Reiner Franke
53 Inflation Theory in Economics
Welfare, velocity, growth and
business cycles
Max Gillman
54 Monetary Policy Over Fifty
Years
Heinz Herrman (Deutsche
Bundesbank)
55 Designing Central Banks
David Mayes and Geoffrey Wood

61 The Capital Needs of Central
Banks
Edited by Sue Milton and

Peter Sinclair
62 Monetary and Banking History
Edited by Geoffrey E. Wood,
Terence Mills and
Nicholas Crafts
63 New Approaches to Monetary
Economics and Theory
Interdisciplinary perspectives
Edited by Heiner Ganßmann
64 Social Banks and the Future of
Sustainable Finance
Edited by Olaf Weber and
Sven Remer

56 Inflation Expectations
Peter J N Sinclair
57 The New International
Monetary System
Essays in honour of Alexander
Swoboda
Edited by Charles Wyplosz
58 Taxation and Gender Equity
A comparative analysis of direct
and indirect taxes in developing
and developed countries
Edited by Caren Grown and
Imraan Valodia
59 Developing Alternative
Frameworks for Explaining
Tax Compliance

Edited by James Alm,
Jorge Martinez-Vazquez and
Benno Torgler
60 International Tax Coordination
An interdisciplinary perspective
on virtues and pitfalls
Edited by Martin Zagler

65 Policy Makers on Policy
The Mais lectures
Edited by Forrest H. Capie and
Geoffrey E. Wood
66 Prediction Markets
Theory and applications
Edited by
Leighton Vaughan Williams
67 Towards a Socioanalysis of
Money, Finance and Capitalism
Beneath the surface of the
financial industry
Edited by Susan Long and
Burkard Sievers
68 Doing Money
Heiner Ganßmann
69 Banking Regulation and the
Financial Crisis
Jin Cao
70 Banking Crises, Liquidity and
Credit Lines
A macroeconomic perspective

Gurbachan Singh

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71 New Paradigms in Financial
Economics
How would Keynes reconstruct
economics?
Kazem Falahati

76 New Perspectives on Emotions
in Finance
The sociology of confidence, fear
and betrayal
Edited by Jocelyn Pixley

72 Risk, Risk Management and
Regulation in the Banking
Industry
The risk to come
Peter Pelzer

77 Global Finance in Emerging
Market Economies
Todd A. Knoop

73 Financial Systems in Troubled

Waters
Information, strategies, and
governance to enhance
performances in risky times
Edited by Alessandro Carretta
and Gianluca Mattarocci
74 Reforming the Governance of
the Financial Sector
Edited by David G. Mayes and
Geoffrey Wood

78 Monetary Policy in Theory and
Practice
Facing the internal vs external
stability dilemma
Nicolas Barbaroux
79 New Contributions to Monetary
Analysis
The foundations of an alternative
economic paradigm
Edited by Faruk Ülgen (with the
collaboration of Matthieu
Méaulle, Rémi Stellian and
Ramón Tortajada)

75 Money in Economic Theory
Hasse Ekstedt

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New Contributions to
Monetary Analysis
The foundations of an alternative
economic paradigm

Edited by Faruk Ülgen (with the
collaboration of Matthieu Méaulle,
Rémi Stellian and Ramón Tortajada)

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First published 2013
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN

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Simultaneously published in the USA and Canada
by Routledge
711 Third Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an
informa business
c 2013 selection and editorial material, Faruk Ülgen; individual chapters,
the contributors
The right of the editor to be identified as the author of the editorial material,
and of the authors for their individual chapters, has been asserted in accordance

with sections 77 and 78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced
or utilised in any form or by any electronic, mechanical or other means,
now known or hereafter invented, including photocopying and recording,
or in any information storage or retrieval system, without permission in
writing from the publishers.
Trademark notice: Product or corporate names may be trademarks or
registered trademarks, and are used only for identification and explanation
without intent to infringe.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging in Publication Data
New contributions to monetary analysis: the foundations
of an alternative economic paradigm/edited by
Faruk Ülgen . . . [et al.].
p. cm.
1. Money. 2. Monetary policy.
I. Ülgen, Faruk
HG221.N39243 2012
339.5’3–dc23
2012039227
ISBN: 978-0-415-82181-0 (hbk)
ISBN: 978-0-203-55321-3 (ebk)
Typeset in Times New Roman
by Sunrise Setting Ltd, Paignton, UK

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Contents

List of figures
List of tables
List of contributors
Preface and acknowledgements
Introduction: renewal of monetary analysis

xi
xii
xiii
xv
1

FARUK ÜLGEN

PART I

Marchands, salariat et capitalistes of Carlo Benetti and
Jean Cartelier

17

1 After thirty years . . .

19

CARLO BENETTI AND JEAN CARTELIER


2 A few questions left unanswered

27

RAMÓN TORTAJADA

3 Nominalism and money in C. Benetti and J. Cartelier

31

ARNAUD BERTHOUD

PART II

Money in the history of economic thought

41

4 Processes of monetary exchange

43

JOSÉ M. MENUDO

5 Unit of account and means of payment
GHISLAIN DELEPLACE

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60



x Contents
6 Monetary objectivity and physical objectivity in Marx’s
reproduction model

68

CARLO BENETTI, ALAIN BÉRAUD, EDITH KLIMOVSKY AND ANTOINE REBEYROL

7 Economics without equilibrium

91

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LORD MEGHNAD DESAI

8 A history of the evolution of the Hahn process

103

JOHN PERDOMO

9 Monetary production economy versus real exchange economy

122

CLAUDE GNOS


PART III

The basis for monetary analysis

133

10 The monetary constituents of capitalism

135

FABRICE TRICOU

11 Beyond modern academic theory of money

155

JEAN CARTELIER

12 Coordination in economy

172

FARUK ÜLGEN

13 Money, banks, and payments

188

SERGIO ROSSI


14 Can investment solve the “paradox of profit” in a monetary
economy?

205

EDOUARD COTTIN-EUZIOL

15 Fairness, financial rents, and conflict

217

GUGLIELMO FORGES DAVANZATI AND GUIDO TORTORELLA ESPOSITO

16 Money in the socialist economy

235

GUY BENSIMON

17 The monetary approach by Benetti and Cartelier, and the
teaching of economics

250

JOSÉ FÉLIX CATAÑO

Index

255



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List of figures

6.1
6.2
6.3
6.4
6.5
6.6
8.1
13.1
13.2
14.1
14.2
15.1
15.2

Marx’s equilibrium
Physical constraints
Critical proportions for reproduction crisis D > 0
Critical proportions for reproduction crisis D < 0
Critical proportions for adjustment crisis
Marx’s critical proportions
Exchanges at disequilibrium given prices
The key role of banks in the pre-financialization era
The altered role of banks in finance-dominated regimes
Monetary flows 1
Monetary flows 2

Profits and workers’ reaction
Wage differentials and the fair wage

75
77
79
81
82
84
107
195
196
207
209
226
228


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List of tables

6.1
6.2
8.1
8.2
10.1
10.2
10.3
10.4

10.5
10.6
10.7
10.8
11.1
13.1
13.2
13.3
13.4

Critical proportions 1
Critical proportions 2
Instant exchange at given prices
Exchange process with medium of exchange
Quasi-matrix of bilateral real flows of Model I (good 1; good 2)
Quasi-matrix of bilateral real flows of Model II (good 1; good 2)
Matrix of bilateral monetary flows of Model II in dollars
Quasi-matrix of bilateral real flows of Model III (good 1; good
2; labor)
Matrix of bilateral monetary flows of Model III in dollars
Quasi-matrix of bilateral real flows of Model IV (investment
good 1; consumption good 2; labor)
Matrix of bilateral monetary flows of Model IV in dollars
Quasi-matrix of bilateral real flows of Model I (good 1;
good 2)-Appendix 1
Matrix of payments
The result of an international payment in the current
‘non-system’
The result of opening credit lines on the interbank market
The results of the payment of wages through the banks’ two

departments
The result of a financial-market transaction in the reformed
book-keeping structure for domestic payments

84
87
109
117
138
139
139
141
141
142
143
145
169
190
194
199
200


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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 Politiques 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, SaintDenis, 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 International
Economic Policy Institute, Laurentian University, Canada
Edith Klimovsky Professor of Economics at the Metropolitan Autonomous University, Mexico-City, Mexico


xiv List of contributors
Matthieu Méaulle Economic Advisor at the Foundation for European Progressive Studies (FEPS), Brussels, Belgium
José M. Menudo Associate Professor of Economics at the Universidad Pablo de
Olavide, Seville, Spain

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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


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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 analysis: About Marchands, salariat et capitalistes,” held at Pierre Mendès France
University, Grenoble, in April 2010.
Although economic theory has reached an exceptional level of scientific
abstraction and intellectual development during the last century, monetary theory
has not yet reached the same level of rigorous and relevant modeling that would
lead scholars as well as policy makers to state unambiguously what money is and
how recurrent monetary issues observed in modern capitalist societies could be
solved. Therefore, without euphemism one could argue that there is no monetary
theory that could be presented as “The” outcome of several centuries of theoretical advances in economics while economic problems in our societies seem to be

intimately related to monetary malfunctioning of capitalist systems. In the wake
of the ongoing world-wide economic and financial crisis, the need for an alternative paradigm to mainstream economics gains even more importance, in the same
way as some authors (including Keynes) were insisting on a renewal in the economic theory of their time in relation to the crisis of the 1930s. The game is worth
the candle and the aim of this book is to shed light on some of the latest updated
developments in monetary analysis.
The book should also be understood as a part of a global intellectual movement 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 at
national and international levels. It stands perfectly within the calls for a renewed
Economic Analysis framework, such as those issued by the World Economics
Association or by the Institute for New Economic Thinking.
We would like to thank all participants of the colloquium and contributors
for their effort in finalizing their first drafts, the quality of their work and
fruitful debates. The colloquium has enjoyed the active logistic and financial support of the Foundation for European Progressive Studies, Pierre Mendès France
University-Grenoble 2, the Centre of Economic Researches on Public Policies in


xvi Preface and acknowledgements

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a Market Economy (CREPPEM) of the University of Grenoble 2 and its PhD students, the Region Rhône-Alpes and the City Council of Grenoble. We express
through this book our sincere gratitude toward all the contributors.
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 and
stimulating reading.
M. Méaulle, R. Stellian, R. Tortajada, F. Ülgen


Introduction: renewal of
monetary analysis

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Raising the stakes?
Faruk Ülgen

Notwithstanding the revealed monetary and financial characteristics of modern capitalist societies’ major economic problems, mainstream economics views
money as a mere afterthought, a technical device which only makes barter less
cumbersome. Consequently, money is not seen as something significant for the
understanding of our economies, except for a few empirical problems like the
causes of inflation. Since the emergence of economics as an autonomous scientific
domain in the social sciences area, most theoretical and empirical researches have
failed to offer a relevant definition of money and subsequently to draw consistent
modeling of a monetary economy.
In the economic theory of the eighteenth and nineteenth centuries, all eminent
thinkers 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 fellow
economist, suggested interesting premises of a monetary theory in a capitalist
economy, but did not develop it to offer an integrated analysis. Some others, like
Léon Walras, seemed hesitant about the conception of money before crowding it
out and designing their approach on non-monetary assumptions.
With Walras-based approaches gaining ground and dominating the economic
thought in the twentieth century, money and related monetary issues were treated
as an annex to a more general utilitarian modeling. Without burdening itself excessively with the Keynesian “interlude,” modern economic theory considered the
economy in non-monetary terms. From J. Hicks, P. Samuelson and M. Friedman to
more recent rational expectations and real business cycles approaches, economics
failed to find a relevant scope of money in an equilibrium-based conception of the
capitalist market economy. This conceptual tendency also dominates the properties 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 an

economic equilibrium framework that consists of integrating money into the structure 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,


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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 type
chosen, the theory would not have the same conceptual structure or the same implications. 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 the
very 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
economic propositions.
From this perspective, an alternative paradigm can oppose mainstream economics through the principle that money is more than a mere afterthought. Money
is seen as the basis for the understanding of capitalist economies, to wit, the
monetary analysis of them. Such a paradigm, to be consistent, must provide a
relevant explanation for the working of a monetary capitalist economy. It must
also be able to analyze the process of capital accumulation and to apprehend a
number of macroeconomic problems in modern economies, like inflation, unemployment, and poverty that seem to stem from some pathologies of the structural
characteristics of our monetary systems.
In this regard, the monetary paradigm relies also on some Kaleckian principles (“workers spend what they earn, while entrepreneurs earn what they spend”)
to point out the overwhelming position of entrepreneurs in capitalism. This position is the result of monetary relations between banks and entrepreneurs. Indeed,
money is created throughout debt-financing operations, which give people (especially the entrepreneurs) the ability to decide the fate of economic evolution

independent of the general equilibrium conditions. Therefore, money comes into
the picture not through the willingness of an unconscious deus ex machina like
Milton Friedman’s helicopter but through the private expectations of banks and
entrepreneurs. Such a money-based economy stance rejects the classical view of
commodity money involved in real-exchange models. The modern origins of this
view can also be found in Keynes’s writings on the finance motive, emphasizing
the very role of money and banks in a market economy.
Money was, and is indeed, a major source of inspiration for unrepentant heterodox economists but also for pluralistic approaches that are committed to the
discovery of the real working of capitalism in an open-minded way rather than
in academic conformism. Consequently, this book aims at bringing back to the
fore an old but very fecund and “young” debate within economic theory: to highlight the role of money in capitalist economies. The fact that money is the basic
institution without which no capitalist economy can develop is ignored by most
economists. As a result, monetary analysis is shared only by a few economists,
although it gives rise to a clear-cut alternative paradigm.


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Introduction 3
In this respect, this book provides a variety of new contributions to monetary
analysis.1 Departing 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 analysis could be in a capitalist economy, the book integrates recent developments of a
specific monetary approach into a modern framework of monetary economics and
aims at deepening the meaning and implications of monetary analysis. Some consequences of monetary analysis are then discussed, including the nature and the
role of money in market economies as well as in a planned economy, the use of
the equilibrium concept, financial instability, and the teaching of economics. Various chapters of the book reveal that the research is broad in scope when monetary
issues are under consideration.
The book is comprised of three parts. The first part presents the analyses of
Carlo Benetti and Jean Cartelier (Chapter 1), Ramón Tortajada (Chapter 2) and

Arnaud Berthoud (Chapter 3) about the foundations of a long-standing debate
in economics: what is at stake in a monetary theory of capitalist economy? In
the 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 Claude
Gnos (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 theoretical foundations of modern research on money as well as the origins of analytical
ambiguities that dominate contemporaneous debates on monetary issues. The third
part of the book aims to suggest a theoretical framework for a renewed monetary
approach 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 Davanzati
and Guido Tortorella Esposito (Chapter 15), Guy Bensimon (Chapter 16), and
José Félix Cataño (Chapter 17) offer results of recent research on what a consistent and broad-scope monetary theory could be based in the twenty-first century.
These chapters especially develop the monetary approach in terms of the monetary constituents of capitalism, the payment system, the coordination issue in
a decentralized market economy and the ambivalence of money, financial instability, the paradox of profit in a monetary economy, the conflict between financial
rents and wages, money in a socialist economy, and the innovative way of teaching
economics by using an alternative monetary paradigm.
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 of
the mice” to borrow Marx’s felicitous expression. The answer seems to lie in the
fact 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 dumped
under the rug.

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4 Introduction
Disequilibrium is at the centre of the monetary approach. This is less a methodological position than an analytical necessity. It comes from a critical analysis of
economic theory (identified as Political Economy). In that, Cantillon’s rule (or
Shapley-Shubik’s rule) plays a major role. Shapley-Shubik’s rule does not make
sense except in a monetary economy. It determines prices whether equilibrium
is obtained or not. It is an indispensable ingredient of a model of a monetary
market process. Benetti and Cartelier state that continuing to evade the problem of the (more or less) decentralized coordination among individuals who have
unequal 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 over
the “real” approach. Instead of evading such a confrontation under the pretext that
this ground is mostly populated by economists whose ideas we do not like, it is
vital to show that the individuals we speak of, while being individuals, are not the
same as those of the academic theory. In MSC, individuals are viewed as individual accounts, i.e. as nodes in a network of payments and not as points (initial
endowments) or functions (preferences or techniques of production) defined on a
commodity-set.
In the same vein, Ramón Tortajada, in the second chapter, recalls some unsettled issues in the monetary theory through the analytical framework developed
by Benetti and Cartelier. Tortajada remarks that contrary to many critiques of
Political Economy, the work of Benetti and Cartelier rejects acceptance of the
incompleteness of Political Economy that may be completed with sociological, psychological, and anthropological work. Benetti and Cartelier intend to
show that it may be possible to make new proposals while remaining within
the economic field. The scope of this approach goes toward the analysis of
contemporary economic and social issues and can even lead to recommend economic and social policy measures. Times of crisis often open up opportunities
for such debates. From this perspective, Tortajada mentions three major proposals of Benetti and Cartelier which would sustain this assertion: the monetary
approach, the determination of prices, and the nature of the “employer-employee
relationship.”
The first proposal, an identification of a specific approach called the monetary

approach, is the most important one and states that every economic magnitude
(e.g. prices, income, taxes, etc.) has a monetary dimension. Consequently, the
understanding of economic relations implies the understanding of money as the
central economic object. Money expresses a set of rules on which the private
expectations and actions of “entrepreneurs” are established and their results are
socially evaluated. This dimension reflects both the private character of economic
decisions and their necessary social insertion. On the one hand, economic units are
only expressed through their economic plans in monetary “accounts” and, on the
other hand, money can only be understood socially as it sweeps away everything
in its path as private monetary relations evolve through interconnectedness among
economic agents.


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Introduction 5
The second proposal studied by Tortajada concerns the cornerstone of economic
theory: the theory of prices which is founded on the nomenclature hypothesis
(everyone knows everything about the goods). This hypothesis is related to the
assertion that the world is known, by economic agents and by the economist,
before any economic operation. Here, the starting point does not consist in analyzing 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 economic subjects. This does not at all mean that prices are not important or may not
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 economic
theories, presented as an extension of the commercial relationship: employees are
said to be “sellers” of merchandise or renters of a service. In MSC, this is no

longer 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 capitalist
class; the second, the employee class, can only access money if it accepts the conditions 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 that
one may identify as the roots of theoretical ambiguities in monetary analysis.
Berthoud states that one can find two philosophical foundations behind Benetti
and Cartelier’s approach. The first one is Marx: Political Economy holds back
and contains the monetary approach of society and this seems to be an unfortunate mistake. The second one is Wittgenstein: Political Economy in general
and the law of value in particular are confused and useless, which can be corrected by rigorous analysis under monetary nominalism. But to Berthoud, it seems
that the credibility of these two ideas is undermined by their combination rather
than bolstered. One should choose: either the advantages of nominalist analysis
but without Marx’s moral indictment of the monetary or mercantilist economy;
or the inevitable approximation of moral realism but without the advantages of
Wittgenstein’s inspiration.
José M. Menudo presents, in the fourth chapter, some eighteenth-century forerunners of modern economics who contributed to the crowding out of money
from economic theory. During the eighteenth century, money was removed from
the most important theories of price determination. Adam Smith’s argument for
change is a new concept of wealth: a participant in a Smithian market does not
want money, but rather the greatest possible quantity of commodity in exchange.
The barter myth was taken up again and integrated into a particular “trading
space.” Although these authors were clearly aware of the issue of money, they separated its role from the circulation of merchandise. Menudo examines authors like
A.-R.-J. Turgot and Richard Cantillon who take their cue from monetary thinking,


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6 Introduction
and demonstrates that removing money also took an active part in both theories of social justice and economic policy mechanisms. Menudo maintains that
a new concept of capital allows Turgot to review John Locke’s Theory of Justice

by means of new forms of accumulation. Given that Turgot views no distinction
between money and the Prince, he rejects that the representation of social phenomena must begin with the circulation of money because the Authority is not the
origin but the consequence of a social contract. He also asserts that unlike John
Law’s proposal, Richard Cantillon’s adaptive incentive mechanism is exclusively
based 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 Benetti
and 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 a
market 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 institution outside the market, and this proclamation is the necessary and sufficient
condition to have it adopted by monetary subjects (agents); c) the means of payment is a concept that comes logically after the unit of account, its introduction
answers the question, not of the unit in which one counts, but of how much is
counted. However, Deleplace expresses in the statement that the unit of account
is the only starting point of the analysis of a monetary economy and maintains
that this starting point must be the unit of account and the means of payment, two
concepts that are distinct but cannot be dissociated. For that he refers to a metallicstandard monetary system of which the study seems to be useful. Deleplace then
mentions three questions which arose in such a system: monetary sovereignty (the
legal definition of the unit of account), the permanence of the unit of account (the
viability of the monetary system), and the external constraint (the existence of
a means of settlement). Deleplace argues that one must deal with these issues to
elaborate 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 monetary
matters: David Ricardo.
Another author rich in controversies in monetary theory, Karl Marx, is reconsidered by Carlo Benetti, Alain Béraud, Edith Klimovsky, and Antoine Rebeyrol
in the sixth chapter. Benetti, Béraud, Klimovsky, and Rebeyrol question the monetary objectivity and the physical objectivity in Marx’s reproduction model. Marx
clearly 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 reproduction. Benetti, Béraud, Klimovsky, and Rebeyrol aim at completing Marx’s

analysis on this point by rewriting Marx’s scheme as a model and bringing out
its typical features. The central role of investment in the sector producing the
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 conditions of equilibrium and crises irrespective of any social specification and put


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Introduction 7
into light a remarkable property of Marx’s approach: such conditions are completely determined only by knowing the monetary flows taken by Marx as initial
data. Therefore, Benetti, Béraud, Klimovsky, and Rebeyrol come back to Marx’s
schemes by adding further social constraints to capital reproduction which are
imposed 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 that
any 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 monetary theory by giving a brief account on money in economic thought. From
Ricardo, Marx, and Wicksell to Myrdal, Hayek, and Keynes, Lord Desai presents
the “abortive revolution in monetary theory,” often related to the notion of equilibrium. Lord Desai puts forward the inappropriateness of equilibrium theories
to model monetary economics. Most, if not all, economics is dominated by the
notion of equilibrium. The subject matter of economics is so complex and in any
situation there are so many possibilities that one needs some systematic way of
ruling out many of these possibilities. Lord Desai argues that equilibrium is the
notion 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 variety of equilibrium concepts available for the economic theorists to characterize
an economy, the Walrasian General Equilibrium (WGE) as the main reference in
modern economic theory chooses among the many available notions of equilibrium a unique (rather than multiple) equilibrium (equilibria) which is also about
a stationary economy in which time plays no part. The markets for all commodities and services clear simultaneously. This way of characterizing an economy has
several consequences. First, being stationary, the economy can never exhibit any
fluctuations or any crises endogenously. Thus it is not surprising that the most

recent crisis was not foreseen by the best macroeconomic models developed and
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 many
times ever since Walras’s ideas became accepted. Most recently, such attempts
were made by Frank Hahn and a group of bright young theorists during the 1960s
and 1970s but the attempt was admitted to be a failure. Lord Desai remarks then
that there has to be a change of direction. So in search for an alternative, many
authors 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, Paul
Davidson, 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 directions. The first one is about the attempts made by Frank Hahn to deal with the
coordination problem in a market economy. The second direction, maybe an alternative one, is the appraisal of John Maynard Keynes’s contribution to monetary
analysis. Chapters eight and nine are devoted to these two topics.


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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 of
the Hahn Process.” Perdomo states that market theory must be able to describe,
through a price mechanism, the decentralized and competitive coordination of
individual plans for the provision of resources, very often but not exclusively
associated with the notion of equilibrium, as well as a market process where
exchanges lead the economy to this state. Its power is to consider that a market
society where all individuals pursue their own well-being can favorably organize
itself 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 General Competitive Analysis. Perdomo maintains that this explains what attracted
the attention of almost all schools of economic thought since Adam Smith. This
essential 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 and
its properties. The theory of market process dynamics associated with the WGE
relies on imposing constraints on the shape of the aggregate excess demand function and the mechanism of tâtonnement. But with the counterexamples of Scarf
in 1960 literature on the stability of general competitive equilibrium abandons its
most ambitious pretensions. Therefore, Hahn and Negishi invoked in 1962 the
importance of integration of exchange mechanisms into the process. For Negishi,
it is an opportunity to overcome the problem of integration of money to the Value
Theory. Nevertheless, Negishi states that without money, the Hahn Process (that
would allow exchanges to be possible outside of equilibrium) would be inconsistent with voluntary exchanges. Perdomo argues that the history of the evolution of
the 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 of
the analysis of equilibrium in successfully accounting for disequilibrium phenomena such as unemployment and crisis, Perdomo’s chapter reveals a Hahn Process
essentially outside of WGE doctrine which could lead us to the renovation of market theory based on market processes where equilibrium would only be a reference
point rather than the goal of economic theory.
From an alternative point of view, Claude Gnos gives us, in Chapter 9, an
appraisal of Keynes’s contribution to the analysis of the actual monetary economy. When he was formulating the General Theory, in 1933, Keynes intended to
elaborate a “monetary theory of production” that would have been in sharp contrast to the (neo) classical theory. To that end, he opposed the monetary economy
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 economy depicted by his predecessors. Moggridge, in his biography of Keynes, argued
that Keynes could not achieve his goal, so he “dropped the whole notion as unable
to do the job he wanted it to – to isolate the distinguishing characteristics of what
he called classical economics.” Then, Keynes would have turned to the analysis of
the liquidity preference and the equilibrating role of fluctuations in output. Gnos



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