ABSTRACT
As we have seen in our historical exposé in Chapter 2 and the discussions of the neoclassical and macroeconomic theoretical approaches, economics contains seemingly vastly different schools of thinking. With respect to money we have also seen that the different approaches have difficulties with the concept, in some cases even in explaining its very existence. Concepts derived from money-like inflation are sometimes irrelevant in the meaning that it is just a kind of renumeration of its face value but sometimes of fundamental interest to the real analysis. Such discrepancies should indeed affect the definition and use of measures of inflation, and in the historical exposé we saw that the origins of inflation were intensively discussed. As long as there was a relatively simple monetary economy based on metal coins and the industrial structures were frugal, the supply of coins or precious metals was the main cause of inflation. Thus the quantity identity was more or less established by the friars of Salamanca in the sixteenth century. Henry Thornton’s analysis is in this respect very illuminating, himself a banker in a fairly advanced economy, as he realized the enormous potential of bank money and he also realized the potential of bank money in affecting the circulation. We paid attention to his distinction of capability of circulation and enforced circulation which is basically forgotten in economic theory of today. Roughly we can say that during the times of Thornton the former concept related to business sectors and contained agreements where the bank money transactions, bills, securities and similar financial items, created an aggregate balance between assets and liabilities, which augmented the total supply of means of payment way beyond the crude money, or law money. The latter concept of enforced circulation concerns law money, and is the very basic medium of exchange. A transaction involving law money ended in time as the physical transaction was concluded. Henry Thornton’s anti-bullionist side stemmed from the fact that he saw bank money as a business matter which was subject to responsibilities and risks which induced a sort of automatic
regulator. Thus bank money affected a different group of agents in comparison with the law money; the former affected business while the latter affected the consumers. His distinction is extremely interesting and relevant to our own time. Our historical exposé gave us also an impression that none of the great economists we discussed in Chapter 2 were discussing an abstract theoretical model. Even Ricardo who was most eager to form abstract principles, took part in the very policy discussions and was in fact a member of parliament. His position in the debate during the early ninteenth century was changing according to the changed structure of Britain’s economic situation which affected his theoretical positions. We also saw that analysts such as Hume, Thornton and Say paid more attention to the interrelation between the economic and social structure than did Smith and Ricardo who were more eager to form some abstract principles for economic thinking. In Chapter 3 we claimed that humans are to be seen as subjects and thus local and temporal final causes. This implies that humans actually have the ability to create and recreate local and temporal axiomatic structures and this is the very meaning of the concept of epistemic cycles. Whether or not the created axiomatic structure is dissipative or inert is a different question. As we saw from our analysis of Arrow’s paradox this will have huge influence on the ability and character of economic abstractions with respect to generality and inertia. A concept like inflation which is a key concept of the monetary economy is most probably sensitive to the particularities of the social and economic structure we actually discuss. In Chapter 4 we made a short overview of the development in Europe and the USA during the aftermath of the Second World War and came to the conclusion that the particular structural components during the 1950s and 1960s implicitly also were the roots of the end of the development. In a world of structural change we may allude to Wicksell and say that on the microscopic levels we may find parts of high inertia and stabilizing forces, while on the macrostructure we seldom find either the inertia or the stabilizing forces, thus to form theories as the quantitative theory on the highest possible level of generalization and abstraction is a bit doubtful.
