Money talks, goods and services don't. This fundamental distinction
is what sets a monetary economy apart from a barter one. As a
result, economic growth requires more than capital, labor and
energy. Being able to signal one's willingness to purchase goods
and services is also required, a "sine qua non" of an advanced
industrial economy. Formally, the ability to generate wealth, it
therefore follows, is no longer a sufficient condition for growth,
but instead, one of two necessary conditions, the other being the
ability to monetize (real or nominal) output-the ability to give a
voice to what would otherwise be a mere potential.
Monetarists, notably Milton Friedman and Anna J. Schwartz, have
chronicled the history of money in the United States, establishing
a direct link between the ability to monetize output as defined by
the fractional reserve system in the United States, and the ability
to create wealth. Recessions are linked to the failure of the
Federal Reserve Board in the United States to provide the necessary
liquidity, and vice versa. In short, the business cycle is
essentially a money-supply driven phenomenon.
This book examines another type of monetary failure, namely the
failure on the part of advanced industrial economies to monetize
output, a failure rooted in the very nature of the transaction
technology (producers and merchants) as opposed to being "supply
related" (e.g. central banks, supply of specie). Specifically, in
periods of paradigm technological change, money income fails to
increase commensurately with society's ability to create wealth,
resulting in underincome. As there are no private incentives to
increase wage income (real or nominal) in response to greater
productivity and profits are a residual income form, overall income
fails to increase with productive capacity.
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