Money Without Value, Accounting Without Measure: How Economic Theory Can Better Fit the Economic and Monetary System We Live In

MONEY AND CALCULATION, ECONOMIC AND SOCIOLOGICAL PERSPECTIVES, Massimo Amato, Luigi Doria, Luca Fantacci, eds., Chapter 3, London: Palgrave, 2010

Posted: 13 Jul 2010 Last revised: 28 Jul 2010

See all articles by Yuri Biondi

Yuri Biondi

French National Center for Scientific Research (CNRS)

Date Written: July 14, 2010

Abstract

The financial crisis of 2007 was unanimously declared a liquidity crisis, and governments and central banks worldwide reacted by injecting massive amounts of fresh money to rescue the financial system. Whilst this response succeeded in effectively restoring ordinary interbank credit, it did not address the systemic issues raised by the crisis.

Empirical evidence of price levels for durable goods, commodities, real estate, or corporate shares, as well as of monetary aggregates, does not point to a lack of liquidity as the proper explanation of the crisis. On the contrary, some key elements suggest an excess of liquidity that implied disruptive speculative waves, including overwhelming inflation of financial assets and real estate.

Such a liquidity problem confronts policy-makers and theorists with two distinct issues already recognized by von Hayek and Keynes respectively: the distinction between money and investment can be weakened and eventually lost by modern financial practices; consequently, secondly, the proper relationship between the monetary and the economic dimension may be muddled by the evaporation of that critical distinction.

Theoretically speaking, then, our problem with liquidity refers then to the proper understanding of money and of it role in economy and society. Our problem relates to the confusion between price and value that leads us to misconceive money as a “measure of value”. This confusion appears to survive from the classical economic English tradition which dominated the nineteenth century and the birth of the political economy. This paper will show that this peculiar understanding of money is inappropriate to the current financial and economic conditions, and does not properly capture the functioning of money in either financial or non-financial organizations.

Keywords: accounting theory, economic theory, money, interest rate, accounting system, profit, grant, public debt, capital, deficit spending, Austrian theory of money

JEL Classification: E4, M40, D20, L20

Suggested Citation

Biondi, Yuri, Money Without Value, Accounting Without Measure: How Economic Theory Can Better Fit the Economic and Monetary System We Live In (July 14, 2010). MONEY AND CALCULATION, ECONOMIC AND SOCIOLOGICAL PERSPECTIVES, Massimo Amato, Luigi Doria, Luca Fantacci, eds., Chapter 3, London: Palgrave, 2010. Available at SSRN: https://ssrn.com/abstract=1638829

Yuri Biondi (Contact Author)

French National Center for Scientific Research (CNRS) ( email )

IRISSO - University Paris Dauphine PSL
Place Marechal Lattre Tassigny
75016 Paris
France

HOME PAGE: http://yuri.biondi.free.fr/

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