Money

The central idea of this book is the concept of a currency order. Monetary theory is developed as a theory of currency orders. The book expands the neoclassical theory of currency orders. This new way of looking at the problems permits a general view of the subject matter of monetary theory and policy which so far does not exist. The concept of transaction costs is used throughout. The book deals not only with the theories of the demand for and the supply of money, the banking firm, and the purchasing power of money. It also presents a theoretically based discussion of the great topics of monetary policy of our time: fixed vs. flexible exchange rates, gold vs. paper, rules vs. authority for the central banks, governmental currency monopoly vs. competition of private currencies, regulation vs. deregulation of commercial banks. The book is suitable as a text for students with a knowledge of money and banking and intermediate microeconomics. It offers a consistent and well-written presentation of the subject matter, as well as an extensive list of further readings.

I. Theoretical Foundations: An Elementary Overview.- 1. General Equilibrium Theory: An Outline.- 1.1 General Equilibrium Theory Without Production.- 1.2 General Equilibrium Theory With Production.- 1.3 The Purchasing Power of Money: Definition.- 1.4 The Determination of the Purchasing Power of Money.- 1.4.1 The Case of a Commodity Standard: The Pure Gold Coin Standard.- 1.4.2 The Case of a Paper Standard: A Pure Paper Circulation.- 1.5 The Classical Dichotomy and the Patinkin Controversy.- Appendix to Chapter 1.- 1. The Determination of the Optimal Consumption Plan of a Household.- 2. The Determination of the Optimal Production Plan of a Firm.- 3. Walras’s Law With Any Number of Households and Firms.- Suggested Readings to Chapter 1.- 1. Theory of General Equilibrium.- 2. The Purchasing Power of Money.- 3. Determination of the Purchasing Power of Money.- 2. Capital Theory.- 2.1 The General Approach.- 2.2 A Simple Robinson Economy.- 2.3 Two Present and Two Future Goods: Does “the” Real Rate of Interest Exist?.- 2.4 The Robinson Economy in Stationary Equilibrium.- 2.5 The Young and the Old Robinsons: The Stationary Theory of Overlapping Generations.- 2.5.1 An Overlapping Generations Model Without Production.- 2.5.2 An Overlapping Generations Model With Production.- Appendix to Chapter 2.- The Stationary Rate of Interest May be Different from Zero.- Suggested Readings to Chapter 2.- 1. The Robinson Economy.- 2. The General Case.- 3. The Optimal Capital Stock of an Economy.- 4. Two Approaches to Capital Theory.- 5. General Discussion of Capital and Interest Theory.- 6. The Model of Overlapping Generations.- 3. The Economics of Institutions.- 3.1 Topics of Modern Institutional Economics.- 3.2 What are Transaction Costs?.- 3.3 Transaction Costs in General Equilibrium Theory: A Simple Example.- 3.4 Why Economic Institutions?.- 3.4.1 The Market as an Institution: Auction Markets or Direct Negotiations?.- 3.4.2 Why Do Firms Exist?.- 3.4.3 Why Relational Contracts?.- 3.4.4 Why Public Regulation?.- 3.5 General Equilibrium and Institutional Economics: Some Conceptual Considerations.- Appendix to Chapter 3.- Utility Maximization of the Household Including Transaction Costs.- Suggested Readings to Chapter 3.- 1. Property Rights and Transaction Costs in General.- 2. Transaction Costs in General Equilibrium Theory.- 3. Why Economic Institutions?.- a) Auction Markets or Direct Negotiations?.- b) Why Do Firms Exist?.- c) Why Relational Contracts?.- d) Internalization of External Effects.- e) Why Public Regulation?.- 4. On the Economic Theory of Institutions.- II. Monetary Theory.- 4. The Nature of Money.- 4.1 The Elementary Currency Order: Some Basic Considerations.- 4.2 Further Discussion of the Elementary Currency Order.- 4.2.1 The Bookkeeping Order.- 4.2.2 The Order of Safeguarding the Value of Money.- 4.3 Economic Explanation of an Elementary Currency Order: The Bookkeeping Order.- 4.3.1 An Illustration of the Advantages of a General Unit of Account.- 4.3.2 An Illustration of the Advantages of General Means of Exchange as a Means of Payment.- 4.4 Economic Explanation of the Elementary Currency Order: The Value Safeguarding Order.- 4.5 Money Loans.- 4.6 Competition in Currencies.- Appendix to Chapter 4.- The Black-Fama-Hall System.- Suggested Readings to Chapter 4.- 1. The Elementary Currency Order.- 2. The Economic Explanation of the Use of Money.- 3. The Economic Explanation of the Order of Safeguarding the Value of Money.- 4. The Early History of Money.- 5. The Law of Money.- 6. On Currency Competition.- 5. An Abstract Book-Money Economy.- 5.1 A Central Accounting System.- 5.1.1 The Account of the Household Robinson.- 5.1.2 The Account of the Firm Robinson.- 5.2 Money Loan Transactions.- 5.3 The Neo-Classical Theory of the Money or Nominal Rate of Interest: A Simple Case.- 5.4 The Neo-Classical Theory of the Money or Nominal Rate of Interest: Some Extensions.- 5.4.1 Two Present and Two Future Goods.- 5.4.2 One Good and Three Periods.- 5.5 Interest and Prices.- 5.6 The Case of Two Currencies: Some Elementary Arbitrage Calculations.- 5.7 Fixed or Flexible Exchange Rates? Some Elementary Considerations.- 5.7.1 Flexible Exchange Rates.- 5.7.2 Fixed Exchange Rates.- 5.8 Neutral Money.- Suggested Readings to Chapter 5.- 1. A Pure Book-Money System.- 2. The Neoclassical Theory of the Nominal Rate of Interest.- 3. The Theory of Commodity Futures Markets.- 4. The Term Structure of Interest Rates.- 5. Wicksell’s Theory on the Spread Between Real and Nominal Interest Rates.- 6. The Purchasing-Power-Parity Theory (PPP).- 7. The Theory of Forward Exchange.- 8. Fixed versus Flexible Exchange Rates.- 9. Neutral Money.- 6. The Quantity of Money and the Prices of Goods.- 6.1 A World With Transaction Costs.- 6.2 Optimal Cash Balances.- 6.3 Cash Balances in General Equilibrium: A Monetary Overlapping Generations Model.- 6.4 An Illustration of the Monetary Overlapping Generations Model.- 6.5 A Simple Stationary Equilibrium With Rational Expectations.- 6.6 Neutrality of Money With Cash Balances.- Appendix to Chapter 6.- 1. The Dimension of the Marginal Costs of Transaction.- 2. The Optimal Consumption and Investment Plan of the Household: An Example.- 3. On the Direct Utility Approach to the Demand for Money and Bonds.- Suggested Readings to Chapter 6.- 1. Temporary Equilibrium.- 2. Optimal Cash Balances.- 3. Once More: The Model of Overlapping Generations.- 4. Rational Expectations.- 5. The Problem of the Non-Neutrality of Money.- 6. The Monetarism Debate.- 7. Safeguarding the Value of Money - Some Basic Institutional Solutions.- 7.1 Safeguarding the Value of Money With a Redeemable Paper Currency: The Case of a Single Currency.- 7.2 Safeguarding the Value of Money With Redeemable Paper Currencies: The Case of Two Currencies.- 7.3 Safeguarding the Value of Money With an Inconvertible Paper Currency: The Case of a Single Currency.- 7.4 Safeguarding the Value of Money With Inconvertible Paper Currencies: Two Currencies.- 7.4.1 The System of Flexible Exchange Rates.- 7.4.2 The System of Fixed Exchange Rates.- 7.5 Gold or Paper? A Retrospective of This Chapter.- Suggested Readings to Chapter 7.- 1. The Gold Standard.- 2. The Paper Standard.- 3. Balance of Payments Theories.- 4. The Problem of the Stability of Flexible Exchange Rates.- 5. Arguments and Proposals for an International Coordination of Exchange Rate Policy.- 6. Gold or Paper?.- 8. Money and Banks.- 8.1 The Theory of the Banking Firm: Preliminary Considerations.- 8.2 The Banking Firm as a Financial Intermediary: A Simple Model.- 8.3 The Demand For Bank Money.- 8.4 The Banking Firm as the Central Agent of a Primary Currency Community: The Commodity Standard.- 8.5 The Banking Firm as the Central Agent of a Primary Currency Community: The Paper Standard.- 8.6 The Banking Firm as the Central Agent of a Secondary Currency Community.- 8.7 Comments on the Public Regulation of Money and Banking.- 8.7.1 Public Regulation of the Central Agents of Primary Currency Communities (Central Banks).- 8.7.2 Public Regulation of the Central Agents of Secondary Currency Communities (Commercial Banks).- Appendix to Chapter 8.- 1. Profit Maximization of the Bank Assuming Cost of Obtaining Reserves (Section 8.2).- 2. Determination of the Optimal Intertemporal Consumption and Investment Plans of the Consumer: The Direct Utility Approach (Section 8.3).- 3. Determination of the Optimal Intertemporal Consumption and Investment Plan of the Consumer: The Transaction Costs Approach (Section 8.3).- Suggested Readings to Chapter 8.- 1. The Theory of the Banking Firm.- 2. The Currency-Banking Debate.- 3. The Real Bills Doctrine.- 4. Maximization of Seigniorage.- 5. The Theory of Credit Creation.- 6. Minimum Reserves.- 7. The New Monetary Economics.- 8. The Rational Justification of a Central Bank: Free Banking or Central Banking?.- 9. The Theory and Practice of Central Bank Constitutions.- 10. Bank Regulation.- Name Index.