Is the Market a Test of Truth and Beauty?

Ȁȇǿ Partʺ: Economics

admired believed “that unless government performed its classical rolethere
was an automatic tendency for groups acting in collusion to price their inputs
or outputs in such a way that a cumulative tendency for economies to run down
could be set in motion” (ȀȈȆȃ, p.Ȁȁǿ, emphasis in original).
Hutt and the Clower-Leijonhufvud school differ, as we have seen, in
their relative emphases on villainy and reasonable behaviour in explain-
ing wage and price stickiness. (I do not want to suggest, however, that
the latter school stresses rigidity or even stickiness as the ultimate source
of discoordination. Clower and Leijonhufvud probe more deeply into
the intricate and prolonged groping necessary to enlist scattered knowl-
edge and achieve a new market-clearing level and pattern of prices after
a major shock. On this distinction, see, in particular, LeijonhufvudȀȈȇȀ,
pp.ȀȀȀ–ȀȀȁ.)

ŔšŠŠ śŚ řśŚőť

Another point on which emphases differ concerns the role of money in eco-
nomic discoordination. Clower in particular (for example,ȀȈȅȆ) empha-
sizes that goods do not exchange for goodsdirectly: money is the medium
of exchange, and if people have difficulty obtaining money by selling their
own goods or services, that very fact keeps them from expressing their
demands for other people’s goods and services.
Hutt is sceptical of this notion of money as a hiatus between selling
and buying.

[W]hen a person buys, he normally demands withmoney’s worth, not

with money. He demands with money only when he happens to be reduc-

ing his investment in it (i.e., not concurrently replenishing his money

holdings),for he can always obtain money costlessly by realizing his inputs

or outputs (services or assets) as their money’s worth.... [T]he acquisition and

spending of money ... is costless.It follows that money is as incidental (and

as important) as cash registers and cashiers in the demanding and sup-

plying process. (ȀȈȆȃ, pp.ȅȆ–ȅȇ, emphasis in original; cf. pp.ȄȆ–ȅǿ)

In this passage Hutt seems to be supposing a unified budget constraint,

in contrast with the realistic split constraint described by Clower (ȀȈȅȆ).

He also seems to suppose that all goods and services are extremely liquid

or readily marketable at their full values. His downplaying of the role of

money as medium of exchange may be associated with his defining the

quantity of money very broadly so as to include what he calls the “pure