Enkele opmerkingen naar aanleiding van de theorie van Patinkin

Summary

The new and revised edition ofMoney, Interest and Prices by Don Patinkin may be seen as a terminal point in a long and often confused debate. Patinkin criticizes, as is generally known, the homogenity postulate of classical and neoclassical models. He argues that if relative prices are determined in the commodity markets the general price level remains undetermined. The sole way out is, according to Patinkin, the introduction of real cash balances in the excess demand functions for commodities.

The logical necessity of Patinkin's solution is disputable. The price level is also determined in a model where the excess demand functions for commodities are homogeneous of degree zero and the demand for money depends on the interest rate, the price level and real (national) income. The commodity markets are disturbed by monetary factors through fluctuations in the interest rate, because investment is assumed to be interest elastic.

The arguments proposed to eliminate the wealth effect of real cash balances are no more convincing than Patinkin's own onesidedness. Three objections of scholars from the University of Chicago are discussed.

Firstly the thesis that decisions of households with respect to flow and stock variables ought to be interpreted as distinct, is reviewed. Secondly, the idea that real cash balances are productive is questioned. Finally, attention is given to the introduction of inside money as opposed to outside money, following the definitions of Gurley and Shaw. As Patinkin observes in his new edition, the case of inside money only reduces his model to the one mentioned in our second paragraph. But why should all money have the characteristics of inside money as Harry Johnson wants it to have?