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Article
Intrinsic Contradictions of the Money Concept From Real Bill to Monetarism and Back Again
Author(s)
Rolf Hasse Erhard Ekstedt
Full-Text PDF XML 488 Views
DOI:10.17265/1537-1506/2017.04.002
Affiliation(s)
University of Gothenburg, Gothenburg, Sweden
ABSTRACT
The Nobel laureate, Robert
Lucas, declared 2003 in his presidential address to the American Economic
Association, that the “central problem of depression-prevention has been
solved, for all practical purposes, and has in fact been solved for many decades”. Today we stand in
front of severe social unease in most OECD-countries and military conflicts are
more severe than in many years. What do the economic scientists say? What do
they suggest? Nothing! Are there any economic models for solving the problems?
Economics is a social science, but has forgotten this in the worshipping of
“the market exchange” and the concept of equilibrium.
This paper is a discourse of the economic theory in
the light of the economic development after WW2. The focus is on the
theoretical anomalies with respect to money in relation to the systemic changes
of the financial sector from WW2 to the current structure. The globalized real
development and ownership of capital imply that financial flows are less
attached to real flows and furthermore that currencies and state securities
became less secure. New financial technologies enforce new attitudes to money,
finance, and financial
control. The financial crises
of 2008 showed the theoretical deficiencies of the ruling mainstream economic
theory particularly in its attitude to the concept of money. The downgrading of
the US 2011 by S&P and the following turmoil showed the fragility and the
chaotic structure of the apprehensions of the system.
It is a bit ironic that the change of the global
financial industry we experience today in its basic structure is similar to the
system prevailing before 1810 and was advocated by Adam Smith, the so called
Real Bill system. During the Napoleonic wars Britain’s financial system became
exhausted not to say chaotic. It became the task of the two leading economists,
Henry Thornton and David Ricardo to design a new system where Bank of England
was the controller of the new system and the final design was taken as a law
1844 Bank Charter Act. This was actually the formal birth of the modern
structure of monetarist theory. Because of the increased global financial integration,
which developed organically outside the control of national authorities due to
new communication systems and some other technical innovations, we now have had
a development back to something like the Real Bill system of pre-1810. This
structural change calls for a definitive departure from the Monetarist theory,
not necessarily by theoretical reason but because it does not fit into the
current economic and financial structure.
KEYWORDS
IS-LM-model, permanent employment, money, monetarism and real bill
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