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This book challenges the conventional view that monetarism is a necessary part of classical economics and shows, in an historical account of monetary controversy, that the framework upon which classical analysis is based suggests an alternative account of the inflationary process. A corollary of the argument is that the monetarist approach is a logically necessary component of neoclassical analysis and that any attempt to criticise that approach in a fundamental way must involve an explicit rejection of the conceptual structure of neoclassical economics.

Inhaltsverzeichnis

Frontmatter

Introduction

Frontmatter

1. Aim of the Inquiry

Abstract
The aim of this work is two-fold. It is intended first, to challenge the prevailing view that monetarism, or the quantity theory of money, is a necessary part of classical economic analysis, and, second, to show that the framework upon which classical (and Marxian) analysis is based suggests an alternative account of the inflationary process. This may be seen as an exercise in the history of economic thought, but the conclusions are also relevant to modern debate. In particular, the converse of the argument is that the monetarist approach to inflation is a logically necessary component of neoclassical analysis, and that consequently any attempt to criticise that approach in a fundamental way must involve an explicit rejection of the conceptual structure of neoclassical economics.
Roy Green

2. The Classical Framework

Abstract
In the conventional interpretation of classical economics, the quantity theory of money is held to be an integral part of its conceptual framework. I shall seek to disprove that interpretation in what may be regarded as the negative, or essentially critical, aspect of my discussion. There is, however, an additional, positive task to be undertaken. I shall also attempt to draw together the elements of an alternative theory of price behaviour, which, it will be argued, is implicit in the classical framework. The discussion will therefore begin with a brief resume of this framework, a preliminary step made all the more necessary in view of successive attempts to recast the classical approach as a primitive variant of neoclassical analysis (e.g., Hollander, 1979).
Roy Green

Metallic Currency

Frontmatter

3. Mercantilism and the Quantity Theory of Money

Abstract
The theoretical analysis of inflation has its origin in the attempts to explain the so-called ‘price revolution’ of the sixteenth and seventeenth centuries. This is the term used to describe the secular rise in commodity prices which occurred throughout Europe, punctuated by sharper, localised fluctuations around a general trend. Then as now, many of the operative short-run factors were widely recognised. Harvest failure, war, disease and currency manipulation all exercised a disproportionately severe influence upon price behaviour in a continent whose predominant economic activity remained agriculture — notwithstanding the rapid dissolution of the feudal social structure and the growing diversification and interdependence of national markets. Such disturbances by themselves, however, could not account for the persistence and generality of the price inflation, which continued at an average rate of around 2 per cent a year for well over a century.
Roy Green

4. Classical Theory of the Metallic System

Abstract
It will be apparent from the discussion so far that mercantilism and the quantity theory of money shared a common approach which ultimately counted for more than the factors dividing them. This is the approach I have characterised as ‘pure exchange’ analysis. The difference between the two founding interpretations of price behaviour lay in their respective attitudes to the stability of output in the equation of exchange — attitudes which stemmed from their distinct conceptions of money. Whereas mercantilist writers identified money with capital, and consequently made the level of output a function of the stock of money available to a country, proponents of quantity theory treated output as fixed, or independently variable, magnitude, since money for them was limited to the role of a medium of circulation.
Roy Green

Currency and Credit

Frontmatter

5. Introduction of Paper Currency

Abstract
After the ‘price revolution’ of the sixteenth and seventeenth centuries, the next major episodes of British monetary history had as their central focus the role of fiduciary money and credit. The first of these, the ‘bullion controversy’, took place as a result of the Napoleonic war inflation at the end of the eighteenth and beginning of the nineteenth centuries; and the second, the ‘currency-banking debate’, was motivated by the increasingly cyclical character of economic activity towards the middle of the nineteenth century. These disputes were no longer between a pure exchange quantity theory of money on the one hand and classical value theory on the other. The law of monetary circulation had by this time been firmly established. Monetary requirements were determined by the ‘supply side’ of the equation of exchange, i.e., by the level of output and prices. The questions now raised were whether in a credit or fiduciary system the money supply could exceed (or fall short of) the normal requirements, and, if so, how this excess (or deficiency) was to be measured and what would be the consequences. The answers to these questions implied specific sets of policies.
Roy Green

6. Theory of the Fiduciary System

Abstract
In the previous chapter, I have examined the development of eighteenth century monetary analysis. The period began with the inflationary collapse of Law’s System and ended with Smith’s succinct presentation of classical doctrine in the Wealth of Nations. The suspension of cash payments by the Bank of England in 1797 following the outbreak of the Napoleonic war opened a new phase of price inflation — or, more precisely, several distinct phases — and rekindled theoretical debate. This inflation was accompanied by a rise in the market price of bullion over its mint price, i.e., a depreciation of paper currency in terms of the monetary standard, a phenomenon which could not have existed when convertibility was enforced by law. The central problem was to explain the appearance of a premium on bullion, and to find a principle whose practical implementation would restore and maintain ‘economic convertibility’, thus ensuring that the bank notes conformed to the laws of metallic currency I have already outlined. It was not surprising, therefore, that the first decade of the nineteenth century should have been, in Marx’s words, ‘hardly more prolific of war bulletins than of monetary theories’ (1859, p. 81).
Roy Green

7. Theory of the Credit System

Abstract
The debate between the Currency and Banking Schools in the mid nineteenth century gave rise to important developments in the theoretical analysis of inflation and business cycles in the context of an increasingly sophisticated credit system. Indeed, Marx spoke of the ‘economic literature worth mentioning since 1830’ as resolving itself ‘mainly into a literature on currency, credit and crises’ (1867/94, III, pp. 492–3). The ‘bullion controversy’ in the early part of the century was addressed, as we have seen, almost exclusively to the operation of a fiduciary system; hence, the resumption of cash payments by the Bank of England in 1821 was the first occasion for any real advance in the theory of credit since Adam Smith. In this chapter, I shall begin with the concept of ‘fictitious capital’ and the determination of the rate of interest, and then attempt to deduce the laws governing the behaviour of credit instruments and their connection with economic activity and prices.
Roy Green

Conclusion

Frontmatter

8. Theory and Policy

Abstract
It has been my intention in this work to trace the development of the classical (and Marxian) analysis of money and prices as an integral part of the ‘surplus’ approach to value and distribution in the market economy. Although the conventional interpretation suggests that this analysis implies a quantity theory of money, I have attempted to show that, in contrast with neoclassical analysis, the classical account of inflation treats the price level as an independent variable in the equation of exchange. It is only in the short run that quantity theory can have any relevance to classical economics; and this, I have argued, is due to its treatment not just of money and prices but also of output.
Roy Green

Backmatter

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