Abstract
This chapter focuses on the rise and fall of the twin ideas-myths of money as a veil and the invisible hand of the market. First, Middle Ages metallistic theory is considered. It is stressed that not all classical economists shared (Adam Smith’s and David Ricardo’s) “received view,” including the international trade Hume mechanism; as an example, reference is made to Antonio Serra and William Petty. The “analytical bricks” methodology of the classical economists is referred to, showing that the classical notion of money as a veil is compatible with the idea of an influence of the monetary on the real economy. The connection between the notion of money as a veil and the myth of the invisible hand of the market in neoclassical/marginalist economics is then explored. Finally, two pillars of a reconstructed modern monetary theory are considered: the Keynesian notions of uncertainty and liquidity preference and Minsky’s money manager economy. The new paradigm may be summarized in three points: money and finance cannot be kept separate and crucially affect the real economy; the Keynesian notions of uncertainty and liquidity preference constitute the foundations on which theorizing over money and finance should rely; the role of finance increases over time, with a change of regime to a “money manager capitalism.”
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Notes
- 1.
For a general illustration of this point, cf. Roncaglia (2019).
- 2.
- 3.
Schumpeter ([1954] 1994, pp. 277–278) hints in this direction.
- 4.
Ricardo’s great intelligence is fully policy-oriented: we should keep in mind that the professionalization of economics is far off in the future, and the method of axiomatic theoretical models (Bourbaki) is still farther off. Sraffa, as great an admirer of Ricardo as we might desire, commented (in answer to some queries by Gramsci), “Ricardo was, and always remained, a stockbroker with a mediocre culture” (Sraffa, 1991, p. 74, my translation). In fact, it was James Mill who pushed his friend David to write the Principles and give them a relatively compact structure.
- 5.
We should also keep in mind the role of usury laws in determining interest rates or at least maximum ceilings for them. On usury laws, cf. Tawney (1926).
- 6.
“An alteration in the value of money has no effect on the relative value of commodities, for it raises or sinks their price in the same proportion” (Ricardo, 1951–1955, vol. 2, p. 396: quite explicit but the only explicit reference I was able to find). At the same time, as Hollander (1979, p. 480) remarks, Ricardo stresses that in the transitory periods required for full adjustment after a change in the quantity of money, such effects are possible, indeed likely.
- 7.
On Serra’s monetary theory, cf. Rosselli (1995).
- 8.
As a consequence, the main policy target is equality between the market and the official price of gold (cf. Marcuzzo & Rosselli, 1991).
- 9.
For instance, in traditional oil or gas deals, both payments and commodity consignments may extend over years, even for decades, giving rise to financial derivatives.
- 10.
Let us recall the controversies between bullionists and anti-bullionists and then between the currency and the banking schools. With the development of banking, a precise definition of money, so as to make it fully exogenous, becomes more difficult to attain. It requires either focusing on coins (commodity money) or relying on a univocal relation between convertible bank notes and the underlying metallic reserves. Tooke’s banking school rejects this tenet (cf. Arnon (1991), who also remarks that other classical authors do not strictly adhere to rigorous definitions of money; cf., e.g., p. 23 on Adam Smith).
- 11.
Of course, this equality only holds when international relations and the public sector are assumed away.
- 12.
Cf., for instance, Blaug, 1997, pp. 157 ff.
- 13.
Things become more complex with the increasing complexity of the national and international monetary and financial markets. Hawtrey’s “Treasury View” with his adhesion to the loanable funds theory depends on his tenet of a separation between monetary and (long-term) financial markets (already criticized by Keynes) and is strictly speaking only valid for a stationary economy (cf. Tonveronachi, 2019).
- 14.
On the method of “analytical bricks,” applied to the interpretation of Sraffa’s analysis, cf. Roncaglia (2009b, in particular pp. 25–28 and 49–51).
- 15.
In fact, Modigliani and Miller (1958, p. 197), after stressing the assumption of perfect competition (and, earlier on, of certainty), call for a follow-up to their analysis where the simplifying assumptions could be abandoned. The preference for internal financing in more realistic analyses is stressed by post-Keynesian economists (Eichner, 1976 and others) who build on this foundation a theory of income distribution whereby investments determine financing requirements and hence pricing decisions, profits, and the profit rate.
- 16.
Some mainstream economists (for instance, Blanchard & Summers, 2019) recently appear to be reconsidering their policy standing but without putting in doubt their theoretical foundations.
- 17.
This important methodological element is often forgotten in financial risk analysis, with serious consequences in the setting of regulatory capital requirements for financial institutions (cf. Roncaglia, 2012).
- 18.
Actually, my talk lasted 43′25″.
- 19.
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Acknowledgments
Thanks (but no implication) are due to Carlo D’Ippoliti, Jan Kregel, Cristina Marcuzzo, Annalisa Rosselli, and Mario Tonveronachi for comments on a previous draft.
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Roncaglia, A. (2022). The Myth of Money as a Veil. In: Arnon, A., Marcuzzo, M.C., Rosselli, A. (eds) Financial Markets in Perspective. Springer Studies in the History of Economic Thought. Springer, Cham. https://doi.org/10.1007/978-3-030-86753-9_1
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