A DENIAL OF PATINKIN'S CONTRADICTION

Abstract

The classical theory of value and price comprises a real sector which determines relative prices and a monetary restriction (the Cambridge equation) which determines the absolute price level. Patinkin considers this system inconsistent because the supply and demand for real goods automatically defines a demand and a supply for money (the “mirror-image”). Patinkin's position is (a) that the system contains, without justification, two monetary equations and (b) that these two are contradictory. It is argued here that neither the mirror-image nor the Cambridge relations constitute market equations in the sense in which such equations apply to commodities. Commodity stocks or flows are desired for themselves and motivate exchange. In the classical system money is not so desired and it does not motivate exchange. The Cambridge equation is a technical restriction having no relation to the demands and supplies of real goods. The mirror-image equation, on the other hand, though it reflects real demands and supplies, is not a behavior restriction at all. Consequently it cannot be part of any monetary theory. Therefore the Cambridge restriction may be superimposed on the real sector without contradiction.,

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