INTRODUCTION

Looking back on the criticism of neoclassical monetary theory documented in previous chapters, we can perhaps be excused a feeling of frustration. Criticism, and negative criticism in particular, is all very well, but it provides little direct indication of how to proceed. The old adage that you can't beat something with nothing holds good. Where, then, do we go from here? The first step towards a more positive contribution can, it seems, be taken by placing the critique of neoclassical monetary theory in longer term historical perspective. To this end Schumpeter (1954:ch. 6) has provided a valuable insight which has been unduly neglected in the literature. Within the history of monetary thought Schumpeter (1954:277–8) distinguishes between two major traditions which he labels Real Analysis and Monetary Analysis and describes as follows:

Real Analysis proceeds from the principle that all the essential phenomena of economic life are capable of being described in terms of goods and services, of decisions about them, and of relations between them. Money enters the picture only in the modest role of a technical device that has been adopted in order to facilitate transactions … So long as it functions normally, it does not affect the economic process, which behaves in the same way as it would in a barter economy: this is essentially what the concept of Neutral Money implies.