Abstract
The terms in which contracts are made matter. In particular, if money is the good in terms of which contracts are made, then the prices of goods in terms of money are of special significance. This is not the case if we consider an economy without a past and without a future. Keynes wrote that ‘the importance of money essentially flows from it being a link between the present and the future’ to which we add that it is important also because it is a link between the past and the present. If a serious monetary theory comes to be written, the fact that contracts are indeed made in terms of money will be of considerable importance.1
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Notes
K. J. Arrow and F. H. Hahn, General Competitive Analysis (San Francisco: Holden-Day, 1971) p. 357. Italics added.
J. R. Hicks, ‘Some Questions of Time in Economics’, in Evolution, Welfare and Time in Economics ed. A. M. Tang, F. M. Westerfield and J. S. Worley (Lexington: Lexington Books, 1976) pp. 135–6.
J. R. Hicks Economic Perspectives (Oxford University Press, 1977).
Since the 1972 Nobel Prize winners have apparently comprehended this message, can it be much longer before the 1976 Nobel Prize winner recognises the inevitable logical inconsistency between his motto and his neoclassical theoretical framework? Clearly Professor Friedman had not yet even perceived the problem in his ‘Debate’ with me. See Milton Friedman’s Monetary Framework: A Debate with His Critics, ed. R. J. Gordon (Chicago: University of Chicago Press, 1974) pp. 148–57, especially pp. 150–1 and footnote 13.
D. Laidler, ‘Expectations and the Phillips Trade Off: A Commentary’, Scottish Journal of Political Economy, 23 (1976) p. 59.
D. Laidler and M. J. Parkin, ‘Inflation : A Survey’, Econ. Jour. 85 (1975) p. 743.
Cf. G. L. S. Shackle, Epistemics and Economics (Cambridge University Press, 1972) p. 71.
M. Friedman et al, Milton Friedman’s Monetary Framework : A Debate With His Critics (University of Chicago Press, 1974), pp. 148–9.
G. L. S. Shackle, ‘Keynes and Today’s Establishment in Economic Theory’, Jour. Econ. Lit., 11 (1973) p. 517.
The aggregate supply curve is derived essentially in the same conceptual manner as the Marshallian micro-supply curve. Thus, for example, in the case of profit-maximising ‘price-taker’ firms, the micro-supply curve is obtained from the points of intersection between a family of alternative ‘expected’ demand curves and the ‘expected’ marginal cost curve. (Cf. P. A. Samuelson, Economics, 9th ed. (New York: McGraw Hill, 1973), p. 454.)
G. L. S. Shackle, Expectations, Investment and Income, 2nd ed. (Oxford University Press, 1968) p. xxi.
H. Townshend, ‘Liquidity Premium and the Theory of Value’, Econ. Jour., 47 (1937) p. 163. Hicks reminds us that if ‘all prices were equally flexible and all price expectations equally flexible’, any change will lead to a ‘complete breakdown’ of capitalism, and the only thing that prevents this instability is ‘price-rigidities’ and ‘beyond price rigidity, … people’s sense of normal [i.e. sticky] prices’ (Hicks, Value and Capital, pp. 297–8).
C. Bresciani-Turroni, The Economics of Inflation (London: Allen and Unwin, 1968), p. 442.
J. M. Keynes, ‘The Ex-Ante Theory of the Rate of Interest’, Econ. Jour., 47 (1937) pp. 668–9.
R. W. Clower, ‘The Anatomy of Monetary Theory’, Amer. Econ. Rev. Pap. Proc., 67 (1977) p. 209.
R. J. Gordon, ‘The Theory of Domestic Inflation’, Amer. Econ. Rev. Pap. Proc., 67 (1977) p. 130. See also A. Okun, ‘Inflation: Its Mechanics and Welfare Costs’, Brookings Papers, 6 (1975) and
W. Poole, ‘Rational Expectations in the Macro Model’, Brookings Papers, 7 (1976) p. 466. The fact that I was a Brookings Economics Panel member in 1974 and tried, both in my Brookings sponsored paper and in the general discussion of the work of others (e.g. ‘Oil: Its Time Allocation and Project Independence’, Brookings Papers, 5 (1974) pp. 411–26; also p. 115), to get my Brookings colleagues to analyse economic problems via time-related spot and forward markets, perhaps had a subliminal impact on their thinking.
A. Marshall, Principles of Economics, 1st ed. (London: Macmillan, 1890), p. viii.
G. Debreu, Theory of Value (New Haven: Yale University Press, 1959) p. 28.
Cf. J. R. Hicks, Critical Essays in Monetary Theory (Oxford University Press, 1967) p. 36.
This section attempts to synthesise the ideas of Hicks, Critical Essays, Chs. 2 and 3, and H. P. Minsky, John Maynard Keynes (New York: Columbia University Press, 1975) and ‘The Financial Instability Hypothesis’, Nebraska Jour. of Econ. and Bus., 16 (1977), with Keynes’s Treatise and General Theory analysis.
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© 1978 Paul Davidson
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Davidson, P. (1978). Why Money Matters: A Postscript. In: Money and the Real World. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-15865-2_16
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