The International Monetary System and the Theory of Monetary Systems

272 Pages·2016·2.51 MB·English

by  Pascal Salin

The International Monetary System and the
Theory of Monetary Systems
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NEW THINKING IN POLITICAL ECONOMY
Series Editor: Peter J. Boettke, George Mason University, USA
New Thinking in Political Economy aims to encourage scholarship in the
intersection of the disciplines of politics, philosophy and economics. It has the
ambitious purpose of reinvigorating political economy as a progressive force for
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The series is an important forum for the publication of new work analysing the
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become increasingly uncommon. Indeed, during the 20th century, the process
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economics in particular has become increasingly mathematical and largely
ignores the role of institutions and the contribution of moral philosophy and
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New Thinking in Political Economy will stimulate new work that combines
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approach to the challenges confronting society in the new century.
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Economic Futures of the West
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Pascal Salin
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Politics as a Peculiar Business
Insights from a Theory of Entangled Political Economy
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Liberty and Equality in Political Economy
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The International Monetary System and the Theory of Monetary Systems
Pascal Salin
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The International
Monetary System
and the Theory of
Monetary Systems
Pascal Salin
Honorary Professor, University Paris-Dauphine, France
NEW THINKING IN POLITICAL ECONOMY
Cheltenham, UK • Northampton, MA, USA
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© Pascal Salin 2016
All rights reserved. No part of this publication may be reproduced, stored
in a retrieval system or transmitted in any form or by any means, electronic,
mechanical or photocopying, recording, or otherwise without the prior
permission of the publisher.
Published by
Edward Elgar Publishing Limited
The Lypiatts
15 Lansdown Road
Cheltenham
Glos GL50 2JA
UK
Edward Elgar Publishing, Inc.
William Pratt House
9 Dewey Court
Northampton
Massachusetts 01060
USA
A catalogue record for this book
is available from the British Library
Library of Congress Control Number: 2016942191
This book is available electronically in the
Economics subject collection
DOI 10.4337/9781786430304
ISBN 978 1 78643 029 8 (cased)
ISBN 978 1 78643 030 4 (eBook)
Typeset by Servis Filmsetting Ltd, Stockport, Cheshire
For Cassandre
my granddaughter

Contents
Introduction ix
PART I BASIC STATEMENTS AND ANALYSES
1 The concept of nation 3
2 The theory of exchange 7
3 Equilibrium and disequilibrium 16
4 The demand for money 26
5 Money creation 45
6 The exchange rate 52
7 An overview of monetary systems and exchange rate regimes 57
PART II THE BALANCE OF PAYMENTS
8 The accounting approach to the balance of payments 63
9 The economic approach to the balance of payments 68
10 Lessons from the analysis of the balance of payments 88
PART III INTERNATIONAL MONETARY EQUILIBRIUM
IN MODERN MONETARY SYSTEMS
11 Money creation in hierarchical systems 105
12 Infl ation, a monetary phenomenon 112
13 The formation of international prices 120
14 General principles about the working of fi xed exchange rate
systems and fl exible exchange rate systems 124
15 The monetary approach to the balance of payments (under
fi xed exchange rates) 128
16 The processes of transmission between monetary systems under
fi xed exchange rates 137
17 International monetary equilibrium under fi xed exchange rates 150
18 The monetary approach to exchange rate variations 164
19 The devaluation 168
vii
viii The international monetary system and the theory of monetary systems
PART IV MONETARY PROBLEMS
20 The very long- term evolution of monetary systems 177
21 The working of fi xed rate systems without an international
currency 208
22 Monetary policy and monetary crises 217
23 Monetary integration in Europe 228
Conclusion: the future of monetary systems 245
References 248
Index 249
Introduction
The explicit aim of this book is to help readers to get a good understand-
ing of the working of what is called the ‘international monetary system’.
In fact, it would be perhaps more correct to speak of ‘the international
set of monetary systems’ insofar as there is not a single system, so the
‘international monetary system’ can only be the juxtaposition of diff erent
monetary systems. This is why an analysis of the international monetary
system cannot be carried out without referring more generally to the
working of monetary systems. Moreover, one cannot really understand
any economic problem without using the general principles of economic
theory. Contrary to what is too often believed, there is not a specifi c
analysis of international monetary economics, of industrial economics, of
the economy of health, development economics or any other economics:
regardless of the specifi c purpose of an analysis, general economic theory
should be applied, because there is necessarily and logically a single
approach to economic problems (and even, more generally, to all social
phenomena).
This is why a study of monetary systems cannot be made independ-
ently of the general economic theory, and the analysis of the international
monetary system cannot be done independently of monetary theory
(itself, therefore, constituting a particular application of general economic
theory). That is also why, beyond specifi c issues studied in this book, it
aims to show how the general economic theory allows one to understand
the concerned phenomena. Thus, this book pursues a methodological
target, since it has been written with the hope that the approach which is
used here can help to develop parallel approaches when studying all kinds
of diff erent problems. The analysis proposed in this book is therefore a
practical example of a method of reasoning which can be used in any fi eld
of knowledge, about any phenomenon.
I do not intend, therefore, to provide the reader with a lot of informa-
tion concerning, for example, specifi c facts of history or current events;
all of these can be found in documents which are easily accessible. It is
useless, indeed, to possess and accumulate information if one does not
have a method of analysis to understand the meaning and scope of this
information. Moreover, employing an analytical method helps in selecting
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