Political Economy of Money and Finance
Macmillan, London; and St. Martin's Press, New York, 1999.
ISBN 0-333-66521-X (hbk) 55.0( ISBN 0-333-66522-8 (pbk) 18.99
This is an exceedingly important book. it is probably the most important contribution to the Marxian theory of money, credit and finance to appear in English since the translation of Suzanne de Brunhoff's Marx on Money in 1976. Itoh and Lapavitsas' book includes a wealth of information, superb literature reviews, profound analyses of the historical evidence and substantiated discussions of controversial policy issues, whose digestion will keep even the most demanding readers busy for a long time. Their argument is invariably thorough, and their research ranges widely, and admirably, from the logical and historical origins of money to free banking, and from long wave theories to socialist money. In spite of its virtues, and partly because of them, this book will probably not become an icon of the literature, although it will certainly become a major reference in the field (which may well be a better option). The reason is simple: Itoh and Lapavitsas probe very deeply into Marx's theory of money and credit, marshal evidence widely, and engage in a wide variety of debates, not least with Marx himself (eg., they criticise certain aspects of Marx's theory of money, on pp.37-40, and credit, on pp.64-5). As their work is very ambitious, complex and controversial, it is unlikely to be universally acclaimed.
The `thread that runs through this book' (p.32) is the attempt to demonstrate that, although money and credit are nonneutral and endogenously created, they are also essential determinants of disharmony, instability and crisis in capitalism. In pursuance of this objective, Political Economy of Money and Finance is divided into three parts. Part one (`Classical Foundations') includes three chapters on the Classical and Marxian theories of money, credit and interest. The presentation of Marx's theories, in chapters two and three, is superb. it goes far beyond the usual exegesis of the first chapters of Capital I and the collation of Marx's incomplete notes on credit and finance in Capital III. The analysis of valueless money and, especially, the derivation of the credit system and interest-bearing capital, are highly innovative and constitute a major contribution to the literature (see below). Part two (`Principles of Credit and Finance') includes four chapters, which describe the essential structures and the historical evolution of the credit system and the capital markets (chapters four and five), and central banking (chapter seven). The latter includes, among other things, a persuasive theory of the origin and role of central banks, and a scathing critique of the current vogue for central bank independence, which should be read carefully by the euro-enthusiasts on the political left. Chapter six makes a wide-ranging review of the monetary and financial aspects of Marx's theory of crisis, which includes interesting insights for the growing financial crisis of world capitalism. Part three (`Postwar Realities and Theories') includes four chapters, among them a historical overview of the `golden age' and a theoretical critique of Keynesianism and the neoclassical synthesis. The other two chapters criticise systematically the post-Keynesian theory of endogenous money and credit, and discuss the role of money under socialism (the content of this chapter will be familiar to readers of Makoto Itoh's recent contributions, e.g., Itoh 1995, 1996).
There is more in this book than can be reviewed in the short space available. I will, therefore, say only a few words about two issues that I find particularly interesting, the origin of the banking system and inconvertible money. Itoh and Lapavitsas develop their theory of banking and credit on the basis of the circuit of capital. They elegantly argue that pools of stagnant (idle) money capital are spontaneously and systematically generated in the course of capitalist reproduction. …