New Trade Theory Takes Over Monetary Theory

Mohammad Gani ()

International Trade from University Library of Munich, Germany

Abstract: Prevailing trade theory is a neglected stepchild of economics. Micro rejects the sole reason for trade’s occurrence. It declares zero profit in equilibrium. Monetary theory and macroeconomics dismiss concerns of trade financing. They assert that money has nothing to do with traded output, but everything to do with storing value. But now a new trade theory takes over monetary theory, by reducing money into a mere tool of trade, as just a means of payment. It takes over theory of exchange, abolishing any distinction between micro and macro. Finally, all of economics becomes a study of exchange, what Whately wished in 1832. This magical empowerment of trade theory occurs as we add indirect trade formally. We put it in the familiar input-output table. We consider demand and supply at four levels: for each good, for each transaction, for each household/nation, and for each economy. At each level, something different happens in equilibrium. We employ intermediaries to settle prices through arbitrage, and payments through seigniorage (by creating and issuing money). Suddenly economics studies economy rather than human behavior. The market economy is an institution of exchange, which is a matrix of real output. All economics now belongs to trade.

Keywords: Social Choice; Trade; Entrepreneurship; Intermediation; Payment Circuit; Money; Price; Unemployment; Business Cycle; Debt. (search for similar items in EconPapers)
JEL-codes: A10 C67 C68 D46 D57 E10 E24 E30 E40 E52 J64 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2004-05-18
New Economics Papers: this item is included in nep-mon
Note: Type of Document - pdf; pages: 34. Whately's 1832 dream comes true as economics becomes science of exchange. Misesian message is put in Leontief's table. Monetary theory is changed at its root.
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