Critical Notes on Schumpeter's Theory of Money—The Doctrine of the "Objective" Exchange Value of Money

Summary

This file is a translated, single-author critical essay, followed by a retrospective postscript. Haberler’s target is Schumpeter’s monetary essay on the “Social Product and the Counting Chips,” especially the equation (E=MU=\sum pm). The essay’s main thesis is that Schumpeter mistakes an accounting identity for an explanatory law: the equation does not relate independent causes and effects, but redescribes the same purchases in different arithmetical forms.

As against this, it is here asserted, and the proof is offered in what follows, that the equation is a tautology in the proper sense of the word.

Haberler’s argument first dissects the right-hand side of Schumpeter’s equation. Since Schumpeter defines income in Fisher’s sense as the money expression of goods consumed, the equality between total income and the sum of prices times quantities says only that the money expression of consumption equals itself. The left side, (MU), fares no better. Once velocity is defined as the number of times money passes from consumption back to consumption, every monetary unit’s “velocity” merely records how often it has paid for first-order goods. The equation therefore matches money paid for goods with the prices of those same goods. Haberler’s conceptual move is to individualize velocity down to each coin or token; hoarded money or money circulating outside consumption simply has zero velocity for the equation’s purpose.

This critique does not dismiss Schumpeter’s brilliance, but it sharply limits the equation’s theoretical value. Schumpeter’s first proposition—that changes in elements of the product-sum cannot directly affect the sum—is, for Haberler, a verbal trick produced by the tautology itself.

This proposition is no more than a truism clothed in a pretty play of words.

The essay then shifts from Schumpeter’s equation to the deeper doctrine of the “objective exchange value of money.” Haberler rejects the distinction between “internal” and “external” objective value: whether prices change from monetary causes or commodity-side causes, the changed thing is still only the exchange relation between money and goods. More radically, he argues that the aggregate “value of money” cannot be an exact magnitude at all. A price level is an artificial construction, dependent on purpose and index-number method; no single social purchasing power exists as an observable entity.

The problem of the value of money is a sham problem!

This does not make Haberler a nominalist. Money remains a real means of exchange subject to ordinary value and price theory. What he denies is a separate, global, objective value of money hovering behind prices. Changes in “the value of money” dissolve into many particular price changes and their effects on differently situated individuals. The methodological center of the essay is thus anti-hypostatic: it refuses to turn useful abbreviations into real economic magnitudes.

Haberler then grounds this denial in marginal-utility methodology. Subjective value belongs to an individual system of wants and choices; it cannot be compared across persons as if society possessed one scale of utility. Consequently, attempts to define a “national-economic” or “social” value of money confuse individual value, market price, and ethical valuation. Against Wieser and Anderson, Haberler insists that social value cannot function as a causal explanation unless one invents a super-individual agent.

The national economy is not collective in the sense of a large individual economy.

From this follows his austere alternative. Price theory needs no mystical intermediate entity between subjective valuations and market prices. Theories that speak of “public economic value” or “social value” either restate price facts in obscure language or make unsupported claims about society’s needs.

Analysis can manage perfectly with two concepts: subjective value and price.

The announced second essay was never written, but the postscript explains how Haberler later recast the argument in his work on index numbers. There he interprets a price level from the standpoint of individual households: the “true” change in prices is the income change that would leave an individual equally satisfied across periods. Laspeyres and Paasche indexes then become approximate bounds rather than measurements of an independently existing social magnitude.

The theory can thus be described as an early and radical version of what is now known as the micro foundation of macro theory.

The essay’s relevance lies in this combination of monetary criticism and methodological reconstruction. It attacks the explanatory pretensions of aggregate equations, dissolves the objective value of money into individual price-level problems, and anticipates later concerns about index numbers, cost-of-living measurement, and the microfoundations of macroeconomic aggregates.