ABSTRACT OF PAPER
Title: From Real Exchange Economics to the Economics of Money Contracts
Author: Terzi Andrea
The longstanding distinction between micro- and macro-economics stands upon the principle that different modelling techniques are needed when dealing with local as opposed to systemic analysis. In dealing with the latter, Keynesians and Monetarists had shared a model employing aggregate variables such as national output, the money supply, and “the” rate of interest, which both viewed as Keynes’s main contribution in modelling a theory of output as a whole. Austrians and Post-Keynesians were, for different reasons, at variance with this view. For the former, the economy’s performance is explained by relative prices and cumulative disequilibrium, not by aggregate variables. For the latter, an operational theoretical framework should be one of a “monetary production economy” where production depends on expected income, people store value in monetary assets, no market signals exist to producers as to when and how consumers’ savings will be spent, and money is “a bottomless sink for purchasing power”. This paper begins with an inspection of alternative means by which economic units can transfer value, and a discussion of how each of these means operates within a given set of social relations. An economy of money contracts exists within a specific dual institutional framework. The paper then claims that a more essential distinction than the one between micro-and macro-economics is the one between modelling an economy where real costs trade for real benefits and modelling an economy where real values only get transferred through money contracts. This paper then explores one of the key analytical differences between these two models. This is the difference between real and financial savings. In a real exchange economy, an act of real savings by one economic unit can fund expenditure by another unit. By contrast, in an economy of money contracts, an act of financial saving by one economic unit requires funding and is associated with an act of another unit issuing debt. In an economy of money contracts, economic performance depends on individual abilities to fund desired spending and saving, and the ultimate source for funding savings is debt. Thus, differences in economic units’ financial balances are the ordinary condition of an economy of money contracts, and the economy’s performance depends on how such differences best work in achieving policy goals, not on forcing a reduction of such differences.
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