Macroeconomics and the Theory of a Monetary Economy
Wallace C. Peterson
The purpose of this chapter is to analyze and reflect upon the future shape of macroeconomics and macroeconomic policy within the context of a theory of a monetary economy. The idea of a monetary economy--or a monetary theory of production--is the fundamental essence of Keynes The General Theory.
In a prescient 1933 article, Keynes described a monetary economy as one in which money plays a role of its own. In such an economy, money is not neutral, as in neoclassical economics. Rather, money "affects motives and decisions and is, in short, one of the operative factors in the situation, so that the course of events cannot be predicted, either in the long period or in the short, without a knowledge of the behavior of money between the first state and the last. And this is what we ought to mean when we speak of a Monetary Economy." 1
Keynes's ideas about a monetary economy are different in a fundamental way from contemporary monetarism, as invented and developed by Milton Friedman and his followers. Money in monetarism is still neutral in the classical sense of being an external or exogenous factor. It is not, as Keynes saw it, an essential, internal, or endogenous part of modern systems of market capitalism. Through the manipulation of money as an external variable, Friedmanite monetarists believe that the short-term course of the economy can be affected, but they do not see money as either a key institution of market capitalism or a crucial part of the system. Money is not "one of the operative factors in the situation."
What is involved in analyzing macroeconomics and macroeconomic policy within the context of the theory of a monetary economy? This requires, first, a separate examination of some key ideas in both institutionalism and Keynesian economics, and, second, an analysis of how these ideas come together through the institution of money to create the essentials of a monetary theory of production. Such a theory is not static, but evolutionary, involving the contributions of
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Publication information: Book title: Political Economy for the 21st Century:Contemporary Views on the Trend of Economics. Contributors: Charles J. Whalen - Editor. Publisher: M. E. Sharpe. Place of publication: Armonk, NY. Publication year: 1996. Page number: 151.
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