The Hereditary and Relativistic Theory of the Demand for Money: Expectations and the non-invariance problem in Maurice Allais[La théorie Héréditaire et Relativiste de la demande de monnaie : anticipations et problème de non-invariance chez Maurice Allais]

In this paper I focus on the Hereditary and Relativistic (HR) theory of the demand for money. This theory—presented by Allais in 1965—remained unknown owing to its conceptual framework incongruous with the standard approach. The HR theory indeed provides a backward-looking model of a hereditary behaviour in an era of macroeconomics revolutionised by the notion of expectations. It states that the physical time scale is not relevant for the study of monetary phenomena. It starts from the idea of time relativity to conceive a psychological time scale on which it bases its formulation of the demand for money. My aim in this paper is to re-situate the HR theory in relation to the mainstream. I show that it intersects with the latter's methodological evolution on crucial points. I underscore in this theory an original conception of "dynamic autoregressive expectations." I show that, given the endogeneity of these expectations, it accounts for a non-invariance problem similar to the one posed by rational expectations and highlighted by Lucas (1976) in his famous critique. I show that the HR theory provides an original solution to this problem.