Abstract

On the Criticism of the Structure of Wealth and Relative Prices

In the literature on monetary theory, a great deal of space has been devoted to the transmission mechanism of relative prices. The article is a critique of this transmission theory. First: the action maxim assumed in the theory (income maximization by economic entities who act rationally) does not do justice to the broad variety of economically relevant behaviour. Secondly: lacking divisibility of individual wealth components neutralizes relative price effects to some extent. Thirdly: the existence of rigid asset-liability structures is neglected, as is the loss of action autonomy by debtors. Fourthly: thinking in terms of the stock of wealth entails a static consideration of economic behaviour. Furthermore, the substitutability of the various wealth components is limited. Fifthly: the actual rigidity inherent in the wealth structure is not adequately explained with the information costs/transformation costs conception. Sixthly: owing to its line of approach, the theory is incapable of assigning sufficient importance to the development-theory aspect of an economic system.