Expectations and the Meaning of Institutions: Essays in Economics

By Don Lavoie; Ludwig Lachmann | Go to book overview

19

THE MONETARY SYSTEM OF A MARKET ECONOMY [1986]

INTRODUCTION

The words of our title are to denote the institutional framework of a market economy such as ours. Markets of course may exist in a centrally administered economy. 'Market socialism' has come into fashion (for good reasons) of late, but markets for capital assets, and thus for financial assets, cannot exist in a socialist economy.

By contrast, such asset markets, and in particular a Stock Exchange embedded in a network of financial asset markets, form the core of a market economy: they are in fact its central markets. The network of financial markets in the South African economy constitutes the main subject matter of the De Kock Report. 1 The Report attempts to find answers to questions of policy applicable to it.

We are thus concerned with the monetary institutions of the South African market economy, those in existence today and those to be brought into existence. In approaching our subject it will be useful to remember Menger's distinction, now a century old, between organic institutions, like money and the pattern of location of industry, which are the product of the interplay of market forces, as a rule over fairly long periods, and pragmatic institutions, like the political constitutions of modern states, which are products of the political will. Making this distinction permits us to understand better the main problem to which the Commission had to address itself: how to devise by political action those monetary institutions that would best complement the other institutions the money market has evolved in the course of the last three decades. We may say that the mode of interaction

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