The Problem of Integration Between the Pure Theory of International Trade and International Monetary Economics

Abstract

In international economics it is customary to distinguish between the pure theory of international trade and international monetary theory (see Sects. 1.1 and 10.1). The former (which has an essentially microeconomic nature) deals with international trade on the assumption that trade takes place in the form of barter, whilst the latter (which is essentially of a macroeconomic nature) deals with the problems deriving from balance-of-payments disequilibria in a monetary economy, etc., (for details see Sects. 1.1 and 11.4). It is also customary to treat these two branches of international economics separately, and we have not departed from standard practice. But one may wonder whether a more general theory exists, which integrates pure and monetary theory. On the problem of this integration it is possible to advance two preliminary considerations:

• (a) the integration must be attempted by taking into account the theoretical framework into which one places the problem;

• (b) the integration can be understood, and attempted, at two levels of increasing generality. At the first level money is considered solely as a medium of exchange. To put it differently, money is only a veil having no influence on the underlying real variables but serving only as a reference unit. At the second level, money (possibly together with other financial assets) has an influence of its own on the real part of the system, so that, for the determination of the (equilibrium) values of the real variables, it is no longer irrelevant whether money is present or the economy operates under barter: the model does not dichotomize.