Money and price theory

Carlo Benetti and Jean Cartelier

Lecturas de Economía, 1996, issue 44, 37-54

Abstract: The article develops the hypothesis according to which modern theory of prices fails to prove that the prices achieved in a situation of competitive equilibrium are actually market prices. The authors begins from the two main results of the modern theory of prices, the existence of prices of general equilibrium and the Pareto optimality of competitive equilibrium. The article states that it is necessary to introduce a market mechanism but it is only possible to do so by assuming the existence of money as a general means of payment. In the article a model is included to explain how rational the process of exchanging goods is. The authors argue that transactions in goods is a social process whereby prices emerge through market mechanism. The market works like a system by which goods are distributed among market participants. Markets are always cleared in the sense that all goods are sold. Disequilibrium only appears in individuals’ accounts as a difference between expected and market price. This d esequilibrium is real as well as monetary; hence, the authors state that this way room for action for monetary regulation of the economy appears.

Keywords: Teoria de precios; Mercado; Estabilizacion del mercado (search for similar items in EconPapers)
Date: 1996
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