A BOOK-KEEPING ANALYSIS
OF A MONETARY ECONOMY
SOME BASIC THEORETICAL ELEMENTS
by
Sergio Rossi
London School of Economics
and
Centre for the Study of Global Governance
January 1997
Published in:
S. P. Dunn et al. (eds) (1997) The Second Annual Postgraduate Economics Conference
- Papers and Proceedings, Leeds: Leeds University Press, Chapter 9 (pp. 141-152).
Abstract
The aim of this paper is to show the way in which money enters the real world and is
used in conformity with the logical rules governing modern banking. In particular, the
first section stresses the vehicular nature of (bank) money and its endogenous character
in providing the objective numerical measure of economic transactions. Bernard Schmitt
and Alvaro Cencini are the authors who have developed the deepest analytical insight
into both banking activity and the workings of modern macroeconomic systems.
Referring to their skilful analysis, whose historical foundations go back to the works of
Smith, Ricardo, Marx, Walras, and Keynes, it can be noted that money flows back to its
point of departure at the very moment it is emitted, since each payment entails the
creation-destruction of the immaterial vehicle necessary to circulate goods among
economic agents. Further, the new conception of money gets rid of all kinds of
subjectivistic approaches to monetary economics, for it logically explains the purchasing
power of money by relating it to the production process (section 2). Being the result of
the monetization of total costs of production, money-income is the avatar of real output,
its factual alter ego.
JEL classification: E40, E50, G21
Keywords: endogenous money, money-income, banking activity
iii
Introduction*
The enigmatic phenomenon of money is even at this day without an explanation that satisfies;
nor is there yet agreement on the most fundamental questions of its nature and functions.
Even at this day we have no satisfactory theory of money.
Karl Menger, ‘On the Origin of Money’, 1892
Broadly speaking, it is sometimes claimed that ‘[m]odern discussions of monetary
theory have fairly well demolished its traditional foundations without so far putting
anything definite in their place’ (Clower 1977: 206). The locus classicus of such claim
is likely to be found in the various unsuccessful attempts to explain - through a
dichotomous representation which distinguishes between real and nominal
macroeconomic magnitudes - why money is essential in modern economic systems (see
for example Hahn 1973). Now, the logical starting point of monetary economics ought
to rest on a thorough investigation into the very nature of money and, therefore, the
peculiar functions performed by the banking system. As a matter of fact, ‘money has its
origin in the banking system and it is through a careful examination of the way it is
issued by banks that the mystery of its twofold nature can be finally understood’
(Cencini 1995: 2). In this paper we thus aim to show the way in which money enters the
real world and is used in conformity with the principles pertaining to banking activity,
as recently pointed out by B. Schmitt and A. Cencini and whose analytical foundations
can be traced back, as we shall see, to the beginnings of our science1.
The emission of money
Let us start from the classical distinction, put forward by A. Smith more than two
hundred years ago, between money and its purchasing power. Consider a quotation from
The Wealth of Nations: ‘[T]he wealth or revenue [...] is equal only to one of the two
values which are thus intimated somewhat ambiguously by the same word, [...] to the
money's worth more properly than to the money’ (Smith 1776/1970: 386). The
theoretical consequences of this conceptual distinction are of the utmost importance, as
we are going to see. Before addressing ourselves to the gist of the matter, it is worth
recalling that in a considerable number of publications various authors have often
propounded the view that a distinction should be made between the intrinsic and the
extrinsic value of (bank) money2. This point, straightforward as it might seem, deserves
a brief analysis, in order to clarify the terms of the problem.
*
The initial version of this paper was written while the author was a postdoctoral research student at the
London School of Economics. It has benefited from comments and suggestions by Prof. Alvaro Cencini
and Prof. Lord Desai. The author also wishes to thank Simona Cain for her assistance in improving the
style of the English manuscript. Financial support (under grant number 81FR–048788) from the Swiss
National Science Foundation is gratefully acknowledged. The usual disclaimer applies.
1
See Schmitt (1966, 1972 and 1984) and Cencini (1984, 1988 and 1995).
2
As Keynes puts it, ‘Jevons certainly, and Edgeworth and Dr. Bowley to the best of my understanding,
have also pursued something distinct from the Purchasing Power of Money, something reached in quite
a different way, something which has to do with what they might describe as the value of money as
4
A BOOK-KEEPING ANALYSIS OF A MONETARY ECONOMY
According to this framework of inquiry, money as such has a positive value (i.e. a
purchasing power) as it is issued by the banking system to enable the settlement of
domestic transactions among economic agents (households, enterprises, government). In
other words, the banking system seems to be endowed with the ability to create ex nihilo
units of purchasing power by a mere stroke of the pen, thus evoking the power of the
ancient kings to earn a profit - known as seigniorage - through the issuance of gold coins
(Figure 1).
Intrinsic value = 0
Banking
system
Extrinsic value > 0
Figure 1
This amounts to saying that the national payment system operates in such a way as to
furnish the economy with a net asset without being compelled to produce it. From a
book-keeping point of view, the argument would run as follows: the public or the
economic agents as a whole have at their disposal a certain amount (or stock) of money,
provided by the banking system at a trifling cost and without the need to resort to the
(same) set of agents in order to obtain the real counterpart of the money thus created
(Table 1).
Table 1
Banking system
liabilities
Public
assets
+
Public
0
Now, such an approach is clearly ill-founded, as a simple glance at Table 1 shows. It is
hardly necessary to stress that the basic rule of double-entry book-keeping imposes the
logical equivalence of both sides of the (bank's) balance sheet. A large body of literature
has indeed grown up endeavouring to consider gold (or any precious metal) as the real
counterpart of the money issued in the country3 (Table 2).
such or, as Cournot called it, the ‘intrinsic value of money’’ (Keynes 1930: 80, italics in the original).
See also Hahn (1973: 230).
3
In the scope of this paper we abstract from foreign exchange reserves because this would lead us too
far.
5
SOME BASIC THEORETICAL ELEMENTS
Table 2
Banking system
liabilities
Public
assets
x£
Gold reserves x£
Yet Friedman himself seems to be aware of the fallacy of this explanation. In his own
words, ‘[t]he ‘gold’ that central banks still record as an asset on their books is simply
the grin of a Cheshire cat that has disappeared’ (Friedman 1987: 7). This argument is
nevertheless incomplete, for it neglects the heart of the matter. Following this approach,
one could indeed argue that nowadays total national output has replaced gold on the
asset side of the banking system's balance sheet, so that domestic money is eventually
being created as the counterpart of Gross Domestic Product (GDP) (Table 3).
Table 3
Banking system
liabilities
Stock of money
assets
x£ Total output
x£
Similar ideas stem from an imperfect analysis of bank money, since they do not
distinguish between the form and the object of payments. It is thus necessary to proceed
one analytical step further in order to reach an important conclusion, already highlighted
by the famous concept of ‘the great wheel of circulation’ so clearly stated by Smith.
‘The great wheel of circulation is altogether different from the goods which are
circulated by means of it. The revenue of the society consists altogether in those goods,
and not in the wheel which circulates them’ (Smith 1776/1970: 385). If money were the
counterpart of national product, it would be logical to add up the ‘monetary mass’ and
GDP in order to obtain the country's total wealth. But this would also amount to
identifying the means of payment (money) with a net asset, used as intermediary good to
facilitate exchanges of real output among economic agents (Figure 2).
good Y
good X
A
B
A
money
first exchange
money
second exchange
Figure 2
6
A BOOK-KEEPING ANALYSIS OF A MONETARY ECONOMY
Since in the real world everyone carries out a series of daily transactions between
(paper) money and all sorts of commodities (goods, services, financial assets), it is
tempting to agree with the traditional view represented in Figure 2. However, despite
appearances to the contrary, this conclusion is not corroborated by modern monetary
analysis. Indeed, in accordance with the classical distinction referred to above, a
thorough examination of (monetary) payments shows that ‘money and real goods [...]
form a unique reality, one and the same magnitude whose peculiarity is indeed to
comprehend two aspects, nominal and real’ (Schmitt 1984: 113, our translation).
Consequently, money is not an exchange intermediary, as in all neo-Walrasian monetary
models of general equilibrium (Clower 1969: 20-1; Starr 1989: 3), but the vehicle
conveying goods among economic agents. In the light of the modern conception of
money, Figure 2 should then be drawn as follows (Figure 3).
money
A
good X
B
money
A
good Y
B
Figure 3
As was already pointed out by both Marx (1973: 141-2) and Keynes (1930: 55-6),
money is the numerical form in which units of purchasing power are expressed4 and, as
Walras would say, ‘the word franc [...] is the name of a thing which does not exist’
(Walras 1874/1954: 188, italics in the original).
Now, an important point to be made at this juncture concerns the nature of the goods (X
and Y in our example) exchanged between the two agents (A and B) in Figure 3. In
effect, at first glance Figure 3 seems to support the view that ‘money does not matter’,
since the exchange between A and B could equally be performed in purely real terms (as
in a virtual barter economy). To establish whether this is true or not, we must ask
ourselves in what terms goods could be valued in the absence of money. It is indeed
widely recognised today that both individual and ‘social’ utility functions - and related
indifference curves - cannot provide either an objective or a non-dimensional measure
of the goods' exchange value5. In the scope of this paper we cannot dwell on this old
controversy. The position of most national accountants - clearly summarised by
4
On Marx's contribution to modern monetary theory, see Cencini and Schmitt (1976) and Cencini (1988:
15-18, 28-30).
5
It is worth noting in passing that Ricardo's search for an invariable standard of value was bound to fail
because of the very dimensional character of his measurement. See Schmitt's introduction to the Italian
edition of the monetary writings of Ricardo (1985) and Cencini (1988: 104-9) for a thorough
discussion of this problem.
7
SOME BASIC THEORETICAL ELEMENTS
Friboulet (1987) - should here suffice to restate the logical need of a mere numerical
standard in order to measure real output in economic terms.
But let us go further and address ourselves to the very nature of the goods entering an
exchange between any two agents. The determining factor is again provided by the
modern analysis of (bank) money, since each (monetary) payment is at the same time an
exchange. Following the skilful analysis worked out by Schmitt and Cencini, Figure 3
must be drawn considering the peculiar role of the banking system in providing the
numerical vehicle for the circulation of domestic output (Figure 4).
Banking system
real output (good X)
A
bank deposit (good Y)
B
vehicular money
Figure 4
The first point to be underlined here is the circular flow of money occurring whenever a
payment is carried out. ‘As monetary intermediaries, banks confine themselves to
supplying the economy with a numerical instrument that they immediately take back’
(Cencini 1995: 21). In other words, the emission of money is simultaneously the
creation and the destruction of the numerical instrument necessary to both measure and
circulate goods. At the practical level, this statement is supported by the mechanical law
of double-entry book-keeping which guarantees the instantaneous matching of the
figures entered on the asset side, on the one hand, and on the liability side, on the other
hand, of any balance sheet. Since for our purposes it is also worth considering the result
of the money flow, for it best highlights the case at issue, let us represent it by referring
to the entry recorded on the balance sheet after the payment depicted in Figure 4 has
occurred (Table 4).
Table 4
Banking system
liabilities
assets
Agent A (payee) x£ Agent B (payer) x£
8
A BOOK-KEEPING ANALYSIS OF A MONETARY ECONOMY
The money B borrows from the banking system in order to purchase A's good is, in one
and the same motion, the numerical form in which A holds (a claim on) a bank deposit
whose value is identically equivalent to that of the commodity he sells to B. Hence,
there is no need to go any further into the study of banking activity to substantiate the
famous expression ‘deposits make loans’ put forward by Withers (1909). The
purchasing power earned by A on the market for produced goods is without any delay
lent to B, who needs it in order to pay for his purchases on the same market.
Let us reconsider both Figure 4 and the book-keeping entry in Table 4. Each payment
(i.e. each monetary exchange) has two aspects - numerical and real - and involves three
poles: the payer, the payee, and the banking system. True, ‘in one and the same act,
money is created6, the borrower becomes a debtor to the bank and the agent receiving a
payment becomes the creditor of the same bank’ (Graziani 1989: 4). The object of A's
claim towards the bank (or, generally speaking, towards the banking system as a whole)
is precisely the purchasing power the same bank lends to B. Put slightly differently, the
seller of a real good (X) exchanges it for a financial claim (good Y) which gives him an
equivalent drawing right over domestic output. It can in fact hardly be doubted today
that bank deposits are the real good par excellence, since they define the monetary form
in which total national product is held before final consumption takes place.
The integration of money into the economy: a production-consumption process
If money were to be introduced into the economy through the exchange process, as one
might hastly infer from the preceding section, it would be already too late to give it an
objective purchasing power over current output. With few notable exceptions, published
studies on monetary economics maintain indeed that money circulates among the public
thanks to its conventional general acceptability on the marketplace. This ‘subjectivistic’
approach is so deeply rooted in our science that even a leading monetary economist such
as Goodhart does not hesitate to declare that
If everyone, including the public sector and foreigners, was prepared to accept the
liability of any intermediary, whether it be bank, building society, or insurance
company, as final settlement for any debt, then the deposits of that intermediary
would become equivalent to legal tender for all practical purposes.
(Goodhart 1989: 111, italics in the original)
Now, the precariousness of a monetary production economy resting on such a social
contract among functional groups of agents whose economic interests are utterly
clashing should be obvious. Households wishing to increase their welfare by higher
wages and lower retail prices and firms aiming at profit maximisation through a
constant reduction in production costs would indeed oppose each other in a classstruggle in which the State might be asked to play the delicate and challenging role of
the go-between. Fortunately, as far as money emission is concerned, reality is much less
complicated than this alleged conventional process of collective bargaining. As a matter
6
Let us stress that it would be better to say that money is emitted, for its creation (on the asset side of the
bank's balance sheet) is simultaneously associated with its destruction (on the liability side of the same
book-entry system).
9
SOME BASIC THEORETICAL ELEMENTS
of fact, as is recognised by Deleplace and Nell among others, ‘people do not choose to
use money in transactions. Money is a constituent part of the economy’ (Deleplace and
Nell 1996: 733, italics ours).
To provide analytical evidence in support of the endogeneity of money, we must
consider the fundamental relationship taking place in the factors market between money
and the newly produced physical output and whose factual result is the formation of
national income. Indeed standard neoclassical models do not explain where the agents'
‘initial endowments’ come from, since they simply assume that production is a
particular case of exchange, namely an exchange between a ‘productive service’ and a
product. (A parallel restatement of this axiomatic conception of the real world is
Friedman's well-known helicopter dropping (paper) money over a national economy.) If
this were true, two dramatic consequences would inevitably follow: (1) money could
never measure economic output objectively and, furthermore, (2) no macroeconomic
income would ever exist. Let us try to show these two major shortcomings of received
monetary theory by referring to Figure 5.
real output
productive service
W
F
W
money
exchange on the
factors market
money
exchange on the
commodity market
production as a relative exchange
Figure 5
In this framework, workers (W) sell their productive services to firms (F) and buy from
them the outcome of the production process (the newly produced goods). Production is
seen as an exchange occurring ‘transversely’ between two different markets, namely the
factors market and the commodity market, where each purchase on the former defines for the same agent - an equivalent sale on the latter (and vice versa). Now, by analogy
with earlier discussion (see especially Figure 2), it follows that the exchange in the
production process as depicted in Figure 5 cannot logically be measured in monetary
terms, since money enters this kind of schemes as a numéraire-commodity and we are
thus trapped again in a circular analysis flawed by the equation ‘money = intermediary
good’. We have indeed to make a formal choice between two logically opposite and
mutually exclusive claims:


if money is really a good (even though of a particular nature), then it cannot measure
real output since it must itself be measured;
on the contrary, if money does not pertain to the set of products, then it cannot be
their counterpart in any exchange whatsoever, either on the commodity market or on
the factors market.
10
A BOOK-KEEPING ANALYSIS OF A MONETARY ECONOMY
By the same token, the overwhelming micro-foundations of general equilibrium models
cannot logically explain the existence of one of the principal macroeconomic
magnitudes of capitalist systems, namely national income, because the exchange
represented in Figure 5 does not account for the birth of a net revenue for the economy
as a whole. Since neoclassical economics claims that income is generated by the
difference between sales and purchases on the commodity market, let us refer to the
right-hand side of Figure 5 in order to try to overcome this logical flaw (Figure 6).
_
real output
F
+
money
+
W
_
national economy
Figure 6
Without going into the detail of general equilibrium analysis, the essence of the
argument may be summed up as follows. On the commodity market, so we are told, the
purchases of households (i.e. workers as in Figures 5 and 6) determine the income
earned by firms, which is circularly invested on the factors market in order to acquire
the productive services. On the whole, the income spent (–) by W on the purchase of the
newly produced goods is gained (+) by the set of enterprises thus defining a zero-sum
game by which (net) national income can never be logically explained: whatever is
gained by one side (F or W) is lost by the other (W or F) so that the revenue for the
economy as a whole is always and tautologically equal to zero (+x –x = 0).
In this respect, Ingham has recently coined an elegant though rather hermetic formula
worth quoting as an opening gambit, which - according to the principle of excluded
third - shall lead us to modern monetary theory. In his own words, ‘money cannot have
‘micro-foundations’ as these are constructed by neoclassical ‘real’ analysis in terms of
object-object and/or object-agent relations’ (Ingham 1996: 14-15, italics in the original).
In plain but provocative language, this amounts to saying that mainstream economics
seeks to explain how it is possible to measure goods in terms of goods (or, in a similar
vein, to produce commodities by means of commodities) in a world where money
should be given an essential role in order to encompass most criticism of the savaged
neoclassical dichotomy.
Now, on a more sophisticated level, the logical flaw of received monetary theory can be
best highlighted by referring to the conception of absolute exchange worked out by B.
Schmitt over the last forty years. Starting from both the numerical and vehicular nature
of (bank) money and endorsing Keynes's still unorthodox analysis on wage-units
(Keynes 1936: Chapter 4), it is indeed possible to provide a rigorous and logical
explanation of the production-consumption process occurring in contemporary national
economies, where ‘income is defined as the exchange between two simultaneous
11
SOME BASIC THEORETICAL ELEMENTS
emissions, a monetary one and a real one’ (Schmitt and Cencini 1982: 139). Let us try to
elucidate this major revolution in economics by means of a flow chart (Figure 7).
Banking system
physical output
W
money-income
F
vehicular money
Figure 7
This exchange, as indeed all other kinds of payments - i.e. those occurring on
commodity or financial markets -, takes place between one and the same agent (W in
Figure 7) thus justifying the expression of ‘absolute exchange’ first used by B. Schmitt
(1966). This is tantamount to saying that in a monetary production economy there is
only one category of agents, namely the set of households, because enterprises
(following Schumpeter's expression) are simply interposed between the workers and
themselves.
The point we would like to make clear here is that production is a complex action whose
result, money-income, is the consequence of an exchange between two flows pertaining
to one and the same economic agent. In contrast with established economic theories,
workers pay themselves for the productive services they provide firms, since they
convert - via the catalysis operated by the banking system - the physically heterogeneous
outcome of labour (real flow) into its homogeneous identical expression under the form
of bank deposits (monetary flow). Hence, money-income has an objective purchasing
power for the very reason that it is the alter ego of total domestic product. It need not be
added that the absolute exchange taking place in the production sphere is thus a
macroeconomic operation, for its result (money-income) defines a positive magnitude
for the national economy as a whole.
All in all, the main conclusion to be drawn here is that ‘[m]oney-income denotes the
national output, and is therefore a real commodity, while a sum of money, taken as such,
is a purely numerical and immaterial form’ (Schmitt 1996b: 86-7, italics in the original).
This outcome does not alter but strengthens the fact that - as objects of economic
analysis - money and output appear (and disappear) together, since they are precisely the
two faces of the same reality. Through the absolute exchange occurring on the factors
market, the physically heterogeneous newly produced goods acquire a numerical form
which renders them commensurable for economic purposes.
12
A BOOK-KEEPING ANALYSIS OF A MONETARY ECONOMY
Furthermore, it becomes thus visible that the sole operation which can logically succeed
in integrating money and output is the payment of wages (Table 5).
Table 5
Banking system
liabilities
Workers
assets
x£
Firms
x£
Recalling the necessary monetary intermediation of the banking system (see also
Figure 7) and endorsing Keynes's contention about the existence of only one factor of
production (Keynes 1936), it should now be evident that households own total national
product at the very moment wages are being paid through the book-keeping entry
recorded in Table 5. Indeed, by analogy with Table 4, it makes sense to argue that
workers pay themselves through the functional intervention of both firms and banks,
thus confirming the aforementioned conclusion that ‘wages are not the monetary
counterpart of the product, but the product itself’ (Schmitt and Cencini 1982: 141).
Ultimately, the (absolute) exchange in the production process is the father of all
economic transactions, for its result, national money-income, represents the form in
which purchasing power is held before final consumption occurs.
Now, before addressing ourselves to the destruction of income on the commodity
market, we ought to dwell briefly on two important issues raised in the preceding
paragraph. Let us follow the order in which they should have appeared to the reader.
1
According to Keynes (1936) and as testified by modern macroeconomic
investigation, it can be maintained that labour is the sole factor of production since
the payment of wages defines total income (see Figure 7) or, identically, the cost of
production of current output7 (see Table 5). Yet this does not necessarily mean that
households obtain all the newly produced goods when they spend their moneyincome on the commodity market. It is indeed not contradictory - on the contrary,
it is meaningful but its far-reaching implications go beyond the scope of this paper
- to claim that (a) the formation of national income is tantamount to the sum of
wages earned by the factors of production, and that (b) the expenditure of income
can engender its (partial) redistribution. A thorough explanation of this conundrum
having already been provided by Schmitt (1984: 123-50), we shall here merely
recall the fact that statement (a) concerns the factors market whereas statement (b)
relates to the commodity market, where retail prices can modify the distribution of
income and give rise to profits. A short numerical example taken from Schmitt and
Cencini (1982: 142-4) may prove useful. Suppose that spending 100 (per cent) of
7
When he defines income in A Treatise on Money, Keynes proposes ‘to mean identically the same thing
by the three expressions: (1) the community's money-income; (2) the earnings of the factors of
production; and (3) the cost of production’ (Keynes 1930: 123, italics in the original).
13
SOME BASIC THEORETICAL ELEMENTS
2
their income workers obtain only 80 (per cent) of current output. The conclusion is
straightforward: fixing the seller price at 125 (per cent), firms are able to earn a
profit on the commodity market by capturing the purchasing power which
identically corresponds to the unsold (100 – 80 = 20) goods.
If households are the (initial) owners of all newly produced goods and services at
the very moment wages are being paid, how can it still be maintained that
consumption takes place only when income is spent on the commodity market? In
accordance with modern monetary theory, we have to distinguish analytically
between two kinds of consumption. As we are going to see, the expenditure on the
commodity market is literally a destruction of income, since the physical goods are
released from the monetary form in which they were held by income holders. But it
should be recalled that the payment of wages is already an expenditure, namely on
the factors market, whose object is precisely current output (see Figure 7). From a
macroeconomic viewpoint the absolute exchange occurring in the production
process defines the instantaneous consumption of the newly produced goods, since
the physical outcome of labour is converted - through the intermediation of the
banking system - into an identically equivalent certificate of deposit (Schmitt 1984:
88-94). The newly produced goods lose their physical dimension to be transformed
into money-income, whose purchasing power is nothing else, as we already know,
than these very products. In this respect, the peculiarity of the productionconsumption process is that the newly generated income is preserved as a drawing
right (bank deposit) over national output.
We may now be able to turn our attention to the commodity market, where income
holders obtain the physical object represented by their bank deposit. For our purposes it
should suffice here to note that income expenditure on the purchase of goods enables
workers to get hold of the value-in-use they have produced (if we assume profits are
nil). Since the essence of the argument is also revealed by the book-keeping entries in
the banking system's balance sheet, let us consider together both the payment of wages
and their final expenditure on the market for produced goods (Table 6).
Table 6
Banking system
liabilities
assets
(1)
Workers
x£
Firms
x£
(2)
Firms
x£
Workers
x£
The first entry relates to the factors market and depicts, as we have already observed
(see particularly Table 5), the formation of national income. Entry (2) is the result of
income expenditure on the purchase of current output and requires, as should be clear by
now, the monetary intermediation of the banking system (Figure 8).
14
A BOOK-KEEPING ANALYSIS OF A MONETARY ECONOMY
Banking system
bank deposit
W
real output
F
vehicular money
Figure 8
On further thought, it becomes visible that the final purchase by households of current
output is another type of absolute exchange, by which workers change their moneyincome into real goods (cf. Figure 7). The monetary form under which units of
purchasing power were held disappears, revealing its physical content, namely national
product.
The creation of income and its destruction are therefore two absolute exchanges of
opposite sign. The first, which we could call positive absolute exchange, defines
the transformation of current output into money income, whereas the second,
negative absolute exchange, defines the transformation of income into physical
output.
(Cencini 1988: 91)
SOME BASIC THEORETICAL ELEMENTS
15
Summing up
In this paper we have attempted to stress the vehicular nature of (bank) money and its
endogenous character in providing the objective numerical measure of economic
transactions. B. Schmitt and A. Cencini are the authors who have developed the deepest
analytical insight into both banking activity and the workings of modern
macroeconomic systems. Referring to their skilful analysis, whose historical foundations
go back to the works of Smith, Ricardo, Marx, Walras, and Keynes, it has been noted
that money flows back to its point of departure at the very moment it is emitted, since
each payment entails the creation-destruction of the immaterial vehicle necessary to
circulate goods. Furthermore, the new conception of money gets rid of all kinds of
subjectivistic approaches to monetary economics, for it logically explains the purchasing
power of money by relating it to the production process. Being the result of the
monetization of total costs of production, money-income is the avatar of real output, its
factual alter ego.
16
A BOOK-KEEPING ANALYSIS OF A MONETARY ECONOMY
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