Studies in Contemporary Economics Dieter Suhr The Capitalistic Cost-Benefit Structure of Money An Analysis of Money’s Structural Nonneutrality and its Effects on the Economy Springer-Verlag Studies in Contemporary Economics Philosophy of Economics. Proceedings, 1981. Edited by W. Stegmüller, W Balzer and W. Spohn. VIII, 306 pages. 1982. B.Hamminga, Neoclassical Theory Structure and Theory Development. IX, 174 pages. 1983. J. Dermine, Pricing Policies of Financial Intermediaries.VlI, 174 pages. 1984. Economic Consequences of Population Change in Industrialized Countries. Proceedings. 1983. Edited by G. Steinmann. X, 415 pages. 1984. Problems of Advanced Economies. Proceedings, 1982. Edited by N. Miyawaki. VI, 319 pages. 1984. Studies in Labor Market Dynamics. Proceedings, 1982. Edited by G. R. Neumann and N. C. Westergård- Nielsen. X, 285 pages. 1985. The Economics of the Shadow Economy. Proceedings, 1983. Edited by W. Gaertner and A.Wenig. XIV, 214 pages. 1985. 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Studies in Contemporary Economics Dieter Suhr The Capitalistic Cost-Benefit Structure of Money An Analysis of Money’s Structural Non- neutrality and its Effects on the Economy Springer-Verlag Berlin Heidelberg New York London Paris Tokyo Editorial Board D. Bös G. Bombach B. Gahlen K. W. Rothschild Author Prof. Dr. Dieter Suhr University of Augsburg Eichleitner Straße 30, 8900 Augsburg, FRG With a contribution by Hans R. L. Cohrssen Former Assistant of Professor Irving Fisher Wiesenau 9, 6000 Frankfurt am Main, FRG rnet te n the In Suhr* blished o e k is pu Mariann oo f Frau . This b o lag ed, rtesy er Ver the cou ring were remov by the Sp mistakes, and ng some mistakes eadi semantic ets or footnotes. takes, but alsoe brack few 990, canning and proof-r quar 8th, 1 pelling mis s gust 2 e on Au . In the course of s sland Cret ag most of them s k i nger Verl e Gree Spri with the latter marked by t on th the iden k by cc s boo thing-a of thi a ba ation d by ublic hr die e p ter Su r after th Dr. Die e yea Prof. ely on * ximat appro ISBN 3-540-51138-5 Springer-Verlag Berlin Heidelberg New York ISBN 0-387-51138-5 Springer-Verlag New York Berlin Heidelberg This work is subject to copyright. All rights are reserved, whether the whole or part of the materiel is concerned, specifically the rights of translation, reprinting, re-use of illustrations, recitation, broadcasting, reproduction on microfilms or in other ways, and storage in data banks. Duplication of this publication or parts thereof is only permitted under the provisions of the German Copyright Law of September 9, 1965, in its version of June 24, 1985, and a copyright fee must always be paid. Violations fail under the prosecution act of the German Copyright Law. © Springer-Verlag Berlin Heidelberg 1989 Printed in Germany Printing and Binding: Weihert-Druck GmbH, Darmstadt. 2142/3140 – 5432 10 5 PREFACE This study is concerned with the time–honored problem of the change that is induced when money enters into the economy. As far back as Aristotle (Politics, pp. 1135–1143) the still–unanswered question regarding the dichotomy of the real– exchange and the monetary economy was raised. He contrasted Oeconomic, where people strive to obtain real utilities (household management), to Chrematistic, where they use money to make more money (art of wealth–acquisition): The true wealth consists of such values in use; for the quantity of possession of this kind, capable of making life pleasant, is not unlimited. There is, however, a second mode of acquiring things, to which we may by preference and with correctness give the name of Chrematistic, and in this case there appear to be no limits to riches and possessions. Trade does not in its nature belong to Chrematistic, for here the exchange has reference only to what is necessary to themselves. (...) In the case of Chrematistic, circulation is the source of riches. And it appears to revolve about money, for money is the beginning and end of this kind of exchange. Therefore also riches, such as Chrematistic strives for, are unlimited. (...) Oeconomic, not Chrematistic, has a limit (...;) the object of the former is something different from money, of the latter the augmentation of money (...) By confounding these two forms, which overlap each other, some people have been led to look upon the preservation and increase of money ad infinitum as the end and aim of Oeconomic. (Aristotle, Politics; as quoted in Marx, 1890a, p. 167) Still many economists are tempted to look upon the increase of money ad infinitum as an economic end in itself: though seemingly arguing in terms of real welfare, in effect their theories deal not with the real benefits to the members of the economic community but with the highest pecuniary return to capital, that is, to invested money or even to money held. This chrematistic view is reflected in the micro– economic ideal of unlimited accumulation of riches and the macro–economic ideal of unlimited growth of the national product. Today’s advanced economic and monetary theory operates on the very sophisticated framework of theory–building and mathematical models. My concepts, I am afraid, are relatively crude in comparison to the conventional standards of elaboration. But they are intended to be instructive and revealing as regards the basic understanding of money, interest, finance, and capital. It has been observed that although monetary theory has been steadily refined, monetary policy has been less and less able to implement these refinements (Ott, 1988, p. 57). The fundamental problems remain unsolved (Schelbert–Syfrig, 1988, 323–324). To the extent that these observations are correct, I might, after all, be able to make a small contribution to the theoretical illumination and practical overcoming of problems of the money economy with my relatively simple yet fundamental efforts. What I need most now is candid criticism and the aid of economists who, better than I, can go into detail and transform into appropriate formulae my laborious reflections, either disproving or confirming them. 6 Another reservation to be made right at the beginning is that although this is a study in monetary economics, the point of departure in the argument is not money but the capitalistic structure of western market economies. “Money”, as it is dealt with in the first chapters, indicates only the direction of my analysis. This procedure makes allowance for the fact that we are used to thinking in terms of capital’s efficiency or productivity, and of returns to physical or financial capital. By the end of our investigation, however, terms and language will have changed. The phenomena referred to as matters of capital will be described and treated in terms of money, or, more generally, in terms of the market economy’s transaction technology. Thus many of the statements in the first chapters must be taken as provisional, and they will be questioned and reformulated in the course of the argument. This amounts to what might be considered a gradual translation from a language centered around capital into a language centered around money, with money proving to be the more fundamental category. Friedman (1956, p. 4), for instance, treats the demand for money as a special topic in the theory of capital. By the end of this book, I hope the reader will agree with this the other way round: the return to capital must be looked at mainly as a special subject of monetary economics. This book also contains a section on the stamp scrip movement from the pen of Hans R. L. Cohrssen (Chapter 13.4). Mr. Cohrssen is well–known to those know- ledgeable in the field of monetary science as coauthor of Professor Irving Fisher’s books Stamp Scrip (1933) and Stable Money (1934). I am extremely pleased that Mr. Cohrssen has unhesitatingly contributed his authentic report, a historical retrospective on cost–bearing money, since he himself so energetically supported Professor Fisher more than 50 years ago in the U.S.A. in the attempt to realize a concept of money the theoretical foundations of which are dealt with in this book. I would never have undertaken these efforts without the initial impetus from Jobst von Heynitz, who put me on the right track. And I would not have continued them without the very early encouragement which I received from Professor Wolfgang Stützel. I deeply regret that he can no longer observe the outcome of his guarded support of my first cautious doubts and ideas. During my work I depended on the instructive criticism and advice of Dr. Hugo Godschalk, my private tutor in monetary economics and co–author of Optimale Liquidität. I am indebted to him for many ideas and insights. Professor Wilhelm Hankel urged me on by insisting on further clarification of the phenomenon of money as the “link between the present and the future” (Chapter 8.2).