Money in Economic Theory (Routledge International Studies in Money and Banking)

The financial crash of 2008 showed the fragility of the financial system. A key question which surfaced in the aftermath of the global crisis was why economists were unable to predict this crash. This new volume argues that this failure can be attributed, at least in part, to the poor and inconsistent treatment of money and monetary matters in economic theory. The book takes this problem as its starting point, and from there aims to develop a more consistent treatment of the topic. Here, Hasse Ekstedt affirms that the treatment of money in economic theory has been inconsistent and that the topic of money can in fact be seen as anomalous. He argues that this anomaly depends on deficiencies in the economic theory, which through an equilibrium approach mainly perceives money as an index of measurement. In contrast, this volume puts forward the case for money as a non-equilibrium concept, and that the stability of money and financial markets are to be sought in social and institutional structures. In particular, the volume discusses the relationship between the market and public bodies, as well as addressing economic and financial stability in general and in relation to the globalized economy, particularly focussing on the problem of structural stability. In doing so, the book offers a new approach both to money and to its role in economic theory. Cover Title Copyright Page Contents List of figures List of tables Preface Acknowledgements 1 Introduction, scopes and methods Scopes of the book Methodological matters The structure of the book 2 The understanding of money: a retrospective glance Introduction Aristotle The Salamanca School David Hume 1711–1776 Adam Smith 1723–1790 The bullionist debate and real bills David Ricardo 1772–1823 Henry Thornton 1760–1815 The aftermath of the bullionist debate and the currency debate Jean Baptiste Say 1767–1832 Knut Wicksell and the two paths of thinking Metallism and chartalism 3 Money, value and prices in neoclassical economic theory Introduction The structure of the neoclassical theory Arrow's paradox Money and cash balances How can we avoid theoretical chaos? The dimensionality problem and economic behaviour Developments of the neoclassical theory Summing up the neoclassical theory and its modifications 4 Money, value and prices in the Keynesian and monetarist theories From the microscopic level to the macroscopic level The complexity of the macroscopic structure Keynes and Keynesian macroeconomics Cash balances, inflation and uncertainty The IS-LM model as a policy tool and its alleged death Supply side economics Complementarities in production and labour hoarding The monetarist challenge 5 Concluding comments on the nature of money in economic theory Some lessons from history Some important features of liquidity Measuring inflation The fundamental intrinsic feature of money State and inflation A mathematical view of measures in non-equilibrium Some further comments on equilibrium Dynamics and irreversibility 6 Uncertainty, money and liquidity Risk and uncertainty A first look at uncertainty Expected utility and the state space The complex state space – the copula Uncertainty of the agents' actions Three levels of uncertainty in decision making 7 Inter-temporal valuation, expectations and stability Introduction Valuation and expectation linked to the real economy Real performance and the financial sector Expectations Uncertainty and money contract Some comments on the globalized economy 8 Money and stability The dimensions of the concept of money The intrinsic logical meaning of money Diffusion of money and equilibrium The modelling problem Production and its conditions Notes Bibliography Index This book argues that the treatment of money and monetary matters in economic theory has traditionally been incomplete and inconsistent, and puts forward a new approach both to money and to its role in economic theory.