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Published online by Cambridge University Press: 04 April 2017
Like many other historians and economists before him, Thomas Piketty includes money in his definition of capital (wealth). This obliges him to distinguish between real and nominal assets, notably to understand the distributional effect of inflation on capital. This article draws comparisons between this approach and other theories of the difference between money and capital, before going on to show, from a historical point of view, why the role and the share of money within total capital cannot be neglected. Potential substitution effects between monetary and non-monetary assets must to be taken into account in order to understand the historical dynamic of capital and the effects of its taxation.
1. According to Marx, there are two kinds of exchange or circulation of merchandise. The first is the transformation of merchandise into money: “selling to buy.” The second is the transformation of money into merchandise followed by its retransformation into money: “buying to sell.” It is only when money (as a currency) follows this latter form of circulation that it “becomes capital, and is already potentially capital.” See Marx, Karl, Capital: A Critique of Political Economy, trans. Fowkes, Ben (New York: Penguin Classics, 1992)Google Scholar, bk. 1, “The Process of Production of Capital,” 1:102.
2. See in particular the heated debate between the “currency school” and the “banking school,” as well as all the controversies that followed the temporary suspension of the pound sterling’s convertibility and lasted until the Peel Act of 1844 separated monetary issuance and banking activity within the Bank of England.
3. Giffen, Robert, The Growth of Capital (London: G. Bell, 1889), 61 Google Scholar.
4. Piketty, Thomas, Capital in the Twenty-First Century, trans. Goldhammer, Arthur (Cambridge/London: Harvard University Press, 2014), 47 CrossRefGoogle ScholarPubMed.
5. In these models, agents maximize a production function (including capital and labor) subject to a budgetary constraint. Money will appear, either in the utility function of each agent or within the budgetary constraint, as a limit on transactions; alternatively, it can be a way to “smooth” the budgetary constraint over several cycles through savings or through the transfer of liquid assets from one period to another. There have been attempts at introducing money into the production function, but they have never generated convincing theoretical conclusions: see Fischer, Stanley, “Money and the Production Function,” Economic Inquiry 12, no. 4 (1974): 517–33 CrossRefGoogle Scholar. Institutionalist theories of money, such as those of Marcel Mauss, Michel Aglietta, André Orléan, or Karl Polanyi, provide a different series of perspectives to which we will return, but none of them grant particular importance to the distinction between money and capital.
6. Ragot, Xavier, “The Case for a Financial Approach to Money Demand,” Journal of Monetary Economics 62 (2014): 94–107 CrossRefGoogle Scholar.
7. For an attempt to theorize capital as money, that is, as an element of the production function that also provides a liquidity feature, see Ricardo Lagos and Rocheteau, Guillaume, “Money and Capital as Competing Media of Exchange,” Journal of Economic Theory 142, no. 1 (2008): 247–58 Google Scholar.
8. There is an opportunity cost to the holding of money rather than assets generating a positive return. For this opportunity cost to be equal to zero, the nominal interest rate must also be equal to zero, which means that the central bank would have to achieve a negative inflation rate equal to the opposite of the real rate of interest on safe assets. See Friedman, Milton, The Optimum Quantity of Money, and Other Essays (London: Macmillan, 1969)Google Scholar.
9. Keynes, John Maynard, The General Theory of Employment, Interest and Money (Cambridge: Macmillan/Cambridge University Press, 1936)Google Scholar, bk. 4, chaps 16 and 17.
10. Piketty, Capital, 515–39.
11. Ibid., 210–11, also 452ff. As a reminder, the return on capital is calculated by dividing all incomes from capital (in nominal terms) by the (also nominal) value of the total capital stock. Moreover, real assets are said to generate a return, or capital gains, while for nominal assets we talk of interest rates.
12. Ibid., 211–12.
13. The idea that inflation is the euthanasia of the rentier is often attributed to Keynes, but this is an error: there is no trace of such a statement in Keynes’ work. On the contrary, Keynes asserts, in terms very similar to Piketty’s, that the euthanasia of the rentier is brought about by a decrease in the marginal rate of return on capital. See Keynes, General Theory, bk. 4, chap. 16.
14. Piketty, Capital, 599 n. 13.
15. Ibid., 547.
16. Ibid. For a more detailed explanation of how central banks’ assets are taken into account in the calculation of public capital, see the annexes in Thomas Piketty and Zucman, Gabriel, “Capital is Back: Wealth-Income Ratios in Rich Countries 1700– 2010,” Quarterly Journal of Economics 129, no. 3 (2014): 1255–310 Google Scholar. I thank Guillaume Bazot for his enlightening remarks on the topic.
17. On the taking into account of capital gains, see Piketty, Capital, 211.
18. Piketty, Capital, 158ff. and 196ff.
19. However, the datasets on monetary assets in the national wealth balance sheets since 1970, used in Piketty and Zucman, “Capital is Back,” in terms of percentage of capital, are similar to the money supply datasets that I will use here.
20. Schularick, Moritz and Taylor, Alan M., “Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870–2008,” American Economic Review 102, no. 2 (2012): 1029–61 CrossRefGoogle Scholar.
21. Piketty, Capital, 200–1.
22. As I observed earlier, Keynes offers some leads for further investigation, since, according to him, capital accumulation can be explained by the difference between the marginal rate of return on it and the rate of interest on money.
23. Monnet, Éric, “Monetary Policy without Interest Rates: Evidence from France’s Golden Age (1948–1973),” American Economic Journal: Macroeconomics 6, no. 4 (2014): 137–69 Google Scholar; Monnet, Éric and Kelber, Anna, “Macroprudential Policy and Quantitative Instruments: a European Historical Perspective,” Financial Stability Review 18 (2014): 151–60 Google Scholar.
24. McKinnon, Ronald, Money and Capital in Economic Development (Washington: Brookings Institution, 1973)Google Scholar.
25. Piketty, Capital, 336–76.
26. See in particular Orléan, André, “L’approche institutionnaliste de la monnaie: une introduction,” in What about the Nature of Money? A Pluridisciplinary Approach, ed. Monvoisin, Virginie, Ponsot, Jean-François, and Rochon, Louis-Philippe (forthcoming)Google Scholar.
27. Bordo, Michael and Rockoff, Hugh, “The Gold Standard as a ‘Good Housekeeping Seal of Approval,’” Journal of Economic History 56, no. 2 (1996): 389–428 CrossRefGoogle Scholar.
28. Hautcœur, Pierre-Cyrille and Sicsic, Pierre, “Threat of a Capital Levy, Expected Devaluation and Interest Rates in France during the Interwar Period,” European Review of Economic History 3, no. 1 (1999): 25–56 CrossRefGoogle Scholar.
29. Monnet, Éric, “La politique de la Banque de France au sortir des Trente Glorieuses. Un tournant monétariste ?,” Revue d’histoire moderne et contemporaine 62, no. 1 (2015): 147–75 Google Scholar; Needham, Duncan, UK Monetary Policy from Devaluation to Thatcher, 1967–1982 (New York: Palgrave Macmillan, 2014)Google Scholar.
30. The content of this article and the opinions expressed therein are the sole responsibility of the author and do not necessarily reflect those of the Banque de France or of the Eurosystem.
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This is a translation of: Monnaie et capital Contributions du Capital au XXIe siècle à l’histoire et à la théorie monétaires
