Abstract
In 1776 Adam Smith published his Wealth of Nations and the American colonies revolted against the mercantilist restraints of the British Crown, two (not unrelated) manifestations of the Industrial Revolution. Hessian soldiers were hired to attend (unsuccessfully) to the rebellious colonists. The British were more successful in managing their internal affairs. The intellectual ferment and political reconstruction of the United Kingdom nurtured the classical school of political economy, heralding the liberation of the masses from feudal serfdom and the landed aristocracy from medieval noblesse oblige. The hopes and fears of the freedom and insecurity of the novel free markets released the pent-up initiative and motivation, respectively, that fueled the Industrial Revolution, inaugurating the Modern Era.
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Endnotes
Here we see one of the roots of the agitation for a balanced-budget amendment to the US Constitution. Since the Federal Reserve Act had not authorized the Fed to change the monetary standard, abandonment of the gold standard did not give the institution any powers it did not formerly possess. To permit social goals as well as the criteria for their selection to be determined by political appointees who are not only independent of the political system but also unaccountable as well as unresponsive to the public is not only undemocratic but also logically monstrous. It is not, however, clear that Constitutionally mandating something the political system is demonstrably unable to accomplish is any more democratic, Constitutional, or sensible. One thing that should be clear, however, is this: Now that recent fiscal policy has made a farce of the monetarist differentiation of fiscal and monetary policy, acknowledgment of the connection between these formerly claimed alternative policies cannot be avoided any longer.
In drama, such a performance would be called farce, a venerable and respected art form. Medieval court jesters who survived were those who kept their liege lords confused as to whether they or their conspiratorial enemies were the targets of travesty. Whether Patinkin’s critique of neoclassical analysis spoofed mathematics or economics, his remedy irrefutably demonstrated that the dichotomy in contemporary economic theory was procedural, not primary. There has always been room for levity in the “dismal science,” and Patinkin deserves the rank of the profession’s premier parodist.
For a documented investigation of the concept of a monetary standard and its relation to monetary policies and objectives, with my recommendations, which is even more timely today than when written almost thirty years ago, see Mason (1963, pp. 81–100, 115–120). The only change I would make today would be to add “exchange rate policy” to the list of “monetary policies.” Meanwhile, to my knowledge, no one has exposed any substantive flaw in the analysis.
If the term had any meaning, it was, simply, the absence of a commodity standard of value (Mason 1963, p. 105).
Japanese depression, temporarily shutting down that source of funds, may hasten the U.S. confrontation with its own debt problem. So far, it has affected Japan more directly than it has the US, but only superficially through efforts to recycle the Japanese trade surplus instead of correcting it by permitting the internal expansion the Japanese people have earned (New York Times, Feb. 22, 1993, pp. A-l, D-3).
The “Keiretsu vs competition” issue between Japan and western developed nations is related to the GATT issue of the priority of removing farm subsidies or barriers to international investment. In the narrowness of the traditional, obsolete, nationalistic focus on the latter question, the complementarity of the East Asian and East European problems and Japan’s contemporary ability to finance a mutual solution were tragically overlooked.
Rhode Island residents recently learned this painful truth from the revelations of the daily televised hearings on the bankrupt Rhode Island Share and Deposit Indemnity Corporation (RISDIC), the politically incestuous “private” company that had attracted financial lambs to their fleecing by the appearance (without the reality) of guaranteeing their deposits. A century ago Lincoln Steffens discovered that governments cannot govern without the cooperation and assistance of criminal elements. Ever since, the cooperation and contention of inlaws and outlaws in government has been continuous and abetted by the tolerance of liberals and the nihilism of conservatives, exacerbated by anarchists of the radical left and right. Simultaneity of the fall of the Liberal Democratic Party and the collapse of the Japanese credit orgy was not a mere coincidence. Both resulted from repeated revelations that Japanese politicians are the “best” that Asiatic Mafia money can buy. These “developments” will jeopardize the lifetime employment system of the “Liberal Democrat” industrial feudalism put together by the United States Department of State in 1955 under the leadership of the rehabilitated war criminal Nobusuke Kishi as prime minister, to forge the Cold War Asiatic anti-communist alliance and offset the internal socialist reaction to wartime fascism (New York Times, Nov. 121,1992, p. A-25).
Ricardo never contemplated a generational separation of debt and payment. The present generation of voting “taxpayers” may think we have discovered a way to get our progeny to pay for our profligacy, but we shall be long gone before it is discovered whether we got by with it or left a minefield for the destruction of democracy!
No one ever bothered to resolve the discrepancy between the neoclassical methodological dichotomy and Frank D. Graham’s discovery that exchange rate movement could alter the terms of international trade (1948).
After claiming the inability of the German central bank to lower interest rates in recession and conceding the failure of Germany to qualify for the common currency agreed on at Maastricht in December of 1991 because of the fiscal deficits imposed by reunification of Germany at currency parity (New York Times, April 7, 1993, pp. D-1,2), it will be difficult for the German central bank (or any central bank) either to deny that monetary policy includes fiscal and exchange rate policy or to claim exclusive central bank control of monetary policy. Indeed, explicit concession of the limitations of central bank power implies serious questions about the very concept of an “independent” central bank that must be resolved before talk of a European Community central bank can proceed!
The last two chapters of Book V of Keynes’ General Theory (1936, pp. 280–309) specify the dynamic short-run fluctuations of the classical quantity theory that the classical school neglected.
Coverage of time as well as space by the mediation of exchange is implicit in the translation of the concept of money as “any generally acceptable means of payment for commodities, services, and securities” (Mason 1980, pp. 222–223, especially n. 22).
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Mason, W.E. (1996). Conclusion. In: Butos, W.N. (eds) Classical versus Neoclassical Monetary Theories. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-6261-0_11
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