ABSTRACT

Whether a theoretical system is realistic or not has been a concern in economics, particularly in the twentieth century. The concern is nowhere more apparent than in monetary theory where the distinction between barter and monetary exchange has often been at the heart of many discussions. For example, in his well-known “A Monetary Theory of Production,” John Maynard Keynes distinguished between Alfred Marshall’s “real exchange” or “barter economy,” where money is “neutral,” and the real world “monetary economy,” where money matters (Keynes 1933: 408). With regard to the former he wrote:

The distinction which is normally made between a barter economy and a monetary economy depends upon employment of money as a convenient means of effecting exchanges-as an instrument of great convenience, but transitory and neutral in its effect. It is regarded as a mere link between cloth and wheat, or between the day’s labor spent on building the canoe and the day’s labor spent harvesting the crop. It is not supposed to affect the essential nature of the transaction from being, in the minds of those making it, one between real things, or to modify the motives and decisions of the parties to it. Money, that is to say, is employed, but is treated in some sense as neutral.