CAPITULO II: MARCO TEÓRICO
I. El TURISMO RURAL COMUNITARIO
1.1. Aproximaciones al concepto de turismo rural comunitario
The quantity theory of money (QTM) adopted by Hume, Ricardo and Mill et al., describes the impact of an exogenous change in the nominal money supply that ceteris paribus leads to a price level change (see 3.2). The implication is that the money supply affects the goods market, in terms of the price level but not relative prices and/or output (as stated in the homogeneity postulate). They assumed a pre-established set of relative prices (price ratios), in a form of general equilibrium, which would then transform in to a new equilbrium. If a change in nominal money supply affected interest rates, for example, changes to consumption and investment spending would follow (Harris 1981). QTM supporters argued that these changes in real balances eventually led to a general equilibrium again, where consumption and investment levels (and relative prices) remained as before.68 In the pre-Keynesian QTM tradition some thinkers did not assume velocity to be constant (due to interest rates, price changes or expectations) and some thought that prices could affect the money supply, rather than it (consistently) being the other way around. As a consequence of these differences, Harris recommended viewing the QTM as a historical money paradigm, rather than an idea rigidly adhered to, that can then be used as a reference point for investigation (Harris 1981: 91). There is a logical problem if Walras’s law is combined with the homogeneity postulate. If the goods (and money) market are in equilibrium (no excesses/surpluses) and the price level were to double with no change to the money supply, the homogeneity postulate informs us that the goods market will remain in equilibrium. This is because the excesses/surpluses depend on changes to relative prices only. The money market, in contrast, according to the QTM, cannot be in equilibrium since a change in the price level means more monies are in circulation or a faster velocity (Harris 1981). In order to resolve the theory dilemma, Patinkin developed the notion of the real balance effect, which draws on the notion of real purchasing power. If the price level is increased, it follows that spending abilities (real balances) are
68 This requires extra money to be distributed equally across economic agents. It is more likely that any interest
55
restricted and the equilibrium is changed to a new equilibrium (Harris 1981). The neoclassical ideas of general equilibrium, with developments (like Patinkin’s) and assumptions, were able to persist. The idea of general equilibrium and QTM discussed (in reference to commodity money) had implications for state financial power. In the same way, the idea that a modern credit-money market can be in equilibrium will also diminish any necessary role for the monetary authorities, since this implies that the savings and the demand for advances are equated at a market interest rate. If a general equilibrium exists with neutral money, the function of the state monetary authorities is restricted to the legitimisation and stability of the currency rather than the management/direction of instigative monetary factors. The neoclassical ideas of money were clarified following publication of Marshall’s Principles of Economics in 1890 (Marshall 1890). Marshall formulated the Cambridge version of the QTM (i.e. Md = k. P.Y), where k represented cash held as a precaution and this meant the inverse of k (M. 1/k = P. Y) was the same as the QTM velocity of circulation, otherwise conceptualised as the demand for money as a proportion of nominal income, rather than other financial assets.69 Marshall speculated whether factors such as the propensity to hoard and/or expectations, might affect the variable (Harris 1981). Many of Marshall’s contemporaries took up this research, the so-called Cambridge quantity theorists (including Keynes until the General Theory), and mused on the determinants of the demand for money and the causes of economic cycles.70 These debates surrounding the QTM are not directly concerned with the political implication of either money-issue or the state control of its purchasing power, but the QTM notion of neutrality is significant. The supporters of the QTM therefore suggest that money is a secondary entity in relation to the real economy. The ideas influenced the work of Giffen, Pigou, and Wicksell (pre-Keynes) and were instrumental (in conjunction with Hicks et al.), in forming the monetary polices of the FRWG/UK during the era of Bretton Woods after WW2. Pure QTM ideas were revived in the 1950s, with the monetarism of Friedman/Chicago School, but with an important role for the state authorities. Backed by empirical work, Friedman argued that there was a stable demand for money (inverse of the velocity of circulation), because money demand was not sensitive to interest
69 Marshall (like Marx) did not include bank deposits as money, despite the fact that they fulfill all of the
(defined) functions of money, and was only concerned with the longer-term analysis (Harris 1981).69
70 Keynes and Wicksell, for instance, had both examined the impact of interest rates on the demand for money
in order to hold it. Wicksell had theorised a ‘pure credit economy’, the ‘natural/market’ rates of interest and direct/indirect mechanisms for translating exogenous money supply growth into higher prices (Harris 1981).
56
rates but responded to nominal income (Friedman 1956, 1968). This follows the QTM and supported emerging monetarist ideas that emphasised a strong correlation between monetary aggregates and inflation (as dependent variable).71 Instead of interest rate policy, Friedman argued for policies to achieve money targets (see 7.5, 9.4 and 10.4) and increasing the money supply in line with output instead. This position was predicated on the rejection of a variable velocity of circulation but acceptance of money neutrality.72 Setting monetary targets relies on the state (via the central bank) to be able to achieve them. If they are not able, the state capability to regulate currency issue is compromised. In the early 1980s, the UK authority embarked on monetary targets but soon abandoned them (see 10.4), although the FRWG/German state (see 9.4) had more success due to flexibility in their objectives. It is argued that monetarism implies restrictions on bank advances at times when inflation is threatening, a position that is likely to be at odds with the aspirations of bank capital.
3.8. CONCLUSION
The chapter has argued that money is secondary within the mainstream QTM tradition. The QTM proponents assume that market forces establish price ratios that exist because they reflect consumer and producer behaviours, determined by subjective notions of relative value. In this theoretical construct relative prices are determined an only then is money introduced with sole purpose of determining the absolute price level. Varying money supplies, according to the homogeneity postulate, do not affect the ratios but only adjust the price level.73 The development or growth of the economy, i.e. the transition from one state of equilibrium to another, is seen as independent of monetary factors. The mainstream view recognises that money serves to enable the economy to work, and that it does so in a much more efficient manner than could be achieved otherwise. Whilst this point is conceded, the thesis rejects the mainstream notion of neutrality on three grounds. Firstly, if spare capacity in the real economy is considered, it is suggested that the control of monetary resources can affect overall output through the instigation of investment, and the impact of this production activity changes the equilibrium. Production takes place that would otherwise not occur and,
71 Other studies such as Desai’s work argued that Friedman was wrong and causality was reversed (Desai 1981).
Since monetarist ideas are predicated on neutrality, money-to-price causation and exogeneity, they are rejected.
72 Kaldor later argued in response to Friedman, that since credit endogenous money (see 4.2) responds to
demand, money could increase (after interest rate change) but money-velocity remain stable (Kaldor 1970: 8).
73 Hume and Friedman had both recognised that money had an impact in the short term but that money was
57
in contrast to the mainstream view, it can be permanent. Price may rise in this scenario, as Keynes noted, but not in proportion to the money supply (Keynes 1936: 303). Secondly, the neutrality of money view assumes an acceptance of the QTM that is explicitly rejected in the thesis. The QTM is problematic because money can be hoarded or re-introduced from hoards and has a varying velocity of circulation. It is posited that changing price levels primarily drive money supply growth rather than the other way around74 and Friedman recognised the possibility of reverse causality (Friedman 1966). Thirdly, the fungibility of money provides it with flexibility. Money can change form more easily than other entities, and its ability to impact a range of outcomes suggests that its functionality is extended beyond that of the functions of money usually stated. The psychological impact of owning (or being dispossessed of) monetary resources, for instance, affects behaviour. Besides, the existence of financial power alone, as Susan Strange defined it (outlined in 1.3), suggests a more than a passive neutral role for money in the productive economy and society.
The mainstream view of money remains problematic, since it is difficult to conceptualise money as simply a veil on real economic activity. In the Walrasian world, of a complex set of exchange ratios determined by catallactic circumstances (price ratios determined by a range of agent market behaviours) to explain change to a new equilibrium, it seems impossible that a monetary economy can function in the same manner as a barter economy. Ingham has suggested that another problem for the mainstream is the inability to identify a plausible explanation of money origin, by emphasising commodity theories (Ingham 2001). These ideas, usually associated with Carl Menger et al, are predicated on the notion that one commodity evolved, as a functioning money-form, that was acceptable to all market agents (Menger 1871).75 As Ingham points out with reference to Hahn, the theory needs to be able to demonstrate the individual rationale for holding money, in order to be consistent with its overall claim of rational agents, and this pre-supposes the existence of a social norm. This social acceptability, in turn, can a priori only be based on social institutions that have been politically sanctioned (Hahn 1987). Ingham points out that the commodity view of money origin is not supported by historical evidence (Ingham 2001).76 He posits instead that these
74 This view does not preclude the possibility of money simply being added to an economy, in a theoretical
sense, instigating a change in the price level as the activities of agents change.
75 The ‘regression theorem’, of Ludvig von Mises, is another example from the Austrian school, which suggests
an endogenous market-driven origin of money (Mises 1912).
76 Ingham points out that it is not only the mainstream that makes this mistake, and cites Marx (Ingham 2001).
Marx, whilst describing money’s origin in the same way as Menger,did not rule out the origination of money by state design (Marx [1867] 1976: 162). He did not posit that money evolved in this manner through the historical
58
theories neglect the use of money as a unit of account (a function identified by Steuart), where the account unit is established prior to trading. Walras assumed a numeraire and the existence of ‘an auctioneer’ before the market process begins, an incidence that is unlikely to have just appeared (Ingham 2001). If a unit of account notion of money is assumed, it can be expressed in a variety of different money-forms, which, in turn, all represent abstract value (of underlying real resources). This idea is given substance within the state theory of money traditions.77 As posited in 2.2, it is the chartalist notion of state money, defined by its functionality, which is taken forward in the thesis. The mainstream monetary conception, has not addressed the political implications of the state/market nexus in respect of financial power in any meaningful sense. In addition the monetarism of Friedman is rejected on the basis of reverse money/price causality, engogenous money, variable velocity of circulation and policy implementation difficulties (see 4.2). It is for the purposes of the key arguments of the thesis it is abandoned altogether.
epochs. In Grundrisse, for instance, Marx explains how capitalism creates its own presuppositions: ‘Once production founded on capital is presupposed – money has been transformed into capital actually only at the end of the first production process’ (Marx [1858] 1973: 459). The existence of capital as an antecedent condition then determines the formation of money in exchange. Money as capital for the next production period is defined by the capitalist mode of production at the start of the circulation of commodities (without the need to discuss its origination). Indeed, the ‘historic presuppositions, are past and gone, and hence belong to the history of its formation, but in no way to its contemporary history (Ibid: 459).
59