The Macroeconomic Laws of Monetary Production Economies

In this chapter, we will show that, when referred to money and income, economic laws are no less rigorous than physical laws. Their validity is not influenced by economic agents’ behaviour, since they belong to the category of identities, and not to that of equilibrium conditions. Whatever decision may be taken by individuals or institutions, these laws remain unaltered. They set the logical rules at the roots of any economic system based on bank money. As such, they do not refer to any specific economic policy, but rather to the monetary structure on which our economic systems are founded. In other words, they pertain to the logical infrastructure making up for the conceptual and practical framework within which economic agents are free to take their decisions. Economists have argued for a long time about the primacy of identities over conditions of equilibrium, and vice versa. Following Walras’s (1874/1984) contribution, and despite Keynes’s (1930/1971) suggestions, it is today almost generally accepted that economic laws are mainly behavioural, and founded on microeconomics. Mathematics is widely used, and equations of various kinds and complexity are considered as one of the best tools available to represent the real world of economics. Identities are rarely referred to, and when they are it is to transform them almost immediately into conditions of equilibrium. Our aim is to re-establish the logical priority of identities and show that they are the very foundation of macroeconomic analysis. We will do so by starting from a reappraisal of Say’s law, and a reinterpretation of Keynes’s identity between global demand and global supply, to end with Schmitt’s law of the necessary equality between each agent’s sales and purchases.