Money, credit and crises: a third question sociale?
Because of its redistributive implications, the problem of the value of money may constitute the third social question: the fixity of the value of money is “indispensable for the exercise of the right of property” (OEC IX: 184 [141]).
The solution that Walras reaches in 1900 is a perfectly exogenous money managed by the state (Baranzini 2005).The young Walras began his career as a follower of the Banking School and supporter of gold-monometallism. But for the rest of his life he advocated a “Gold money with regulating silver token” together with the abolition of the net issue of bank notes. In 1884, at the International Monetary Conference for the Prolongation of the Latin Union, he presented a scheme the benefits of which would be “the reform of our monetary system by means of regulating the variation in the value of money, the reform of our credit system by getting rid of fictitious drawing credit, the redemption of part of the public debt” (OEC X: 43 [37]). This was supposed to stabilize the value of money and reduce the magnitude of crises.
As early as the first edition of the Elements (s. 195), Walras refers to transactions made without the medium of precious metals; but he is aware of the difficulties inherent to the matter, and postpones any conclusion to a later specific study. In 1880, he publishes the “Theorie mathematique du billet de banque”, which contains “singular and interesting results, which I for one had not expected,” (Jaffe 1965) as he writes to Jevons in March that same year. Banknotes are not a substitute for other means of payment: they are added to them and cause crises because their issue occurs through credit operations. Issuing banknotes expands credit beyond savings as well as distorting the respective maturities of deposits and loans. Walras had anticipated both the forced savings theory and the cumulative processes theory, and this enabled him to find an explanation to crises, as triggered by the complexities of reabsorbing banknotes.
“I am increasingly convinced that in fact the issue of banknotes could not be reimbursed at a moment’s notice without social upheaval, nor be reduced without considerable economic difficulty” (OEC X: 16 [12]).In the 1882 text, “De la fixite de la valeur de l’etalon monetaire” (OEC XI), Walras showed that the gold-money system with a silver token regulator (separate from money in coins and notes) provides greater stability than a bimetallic system, let alone a monometallic one. However, that kind of stability is relative and it is still necessary that the state should add or subtract an appropriate amount of the regulating token, and be the only one to influence the amount of money in circulation. From this point of view, “the general equilibrium... is based not on the theoretical neutrality of money assertion, but on its political neutralization” (De Caro 1988: 111). Thus, the money circulation problem would be completely solved, by correcting “the slow, persistent variation in the value of money, which affect ownership and disturb general economic equilibrium” (OEC X: 359 [312]).