On Monetary Regimes in General and in Brazil
The topic I have been asked to address — the principles guiding the choice of a monetary regime or constitution — has remained an unresolved issue in the theories of money and economic policy. The student of money confronts four formidable obstacles when addressing this issue as an application of economic theory. First, money is not only neutral in monetary theory, but it is one of many, undifferentiated commodities without any particular properties that can affect the economy's equilibrium. Any commodity chosen at random provides money services as well as any other. Second, although the choice of monetary institutions or a monetary standard can have real effects in practice, these effects are excluded from formal economic theory by the assumption of continuous market clearing and by making the competitive equilibrium independent of real world institutions. Third, relevant aspects of uncertainty that give rise to costly information are missing. At most, individuals hold certain expectations about all possible future contingencies. Fourth, a representative agent makes all decisions, bears all costs, and receives all benefits. There are no effects of redistribution through inflation or deflation. In this framework the choice of a monetary constitution is uninteresting.