ABSTRACT
The aim of this paper is to evaluate the effect of Hicks’s 1935 “simplification” on the contemporary analysis of the integration of money into the value theory. Hicks’s methodological suggestion is based on two central concepts: individual choice and frictions. Since 1935 the development of the monetary theory has been characterized by the search of relevant frictions so that individuals choose money at equilibrium. We show that, while these concepts are well adopted to analyse money as a store of value it is not possible, on this basis, to obtain (construct) a model where the theories of money and prices are successfully integrated. After a critical examination of the main results of the recent monetary theory, we sketch an alternative solution based on a scheme of price formation where money, as a medium of exchange, is a condition of the price system. In this framework money can be integrated into the price theory without making use of the Hicksian concepts of individual choice and frictions.
