| This dissertation is based on the classical economic framework, which has its center in the notion of “social surplus” and relies on the concepts of free competition and long-run equilibrium. It shows how the classical theory for the gold standard can be modified to suit the modern economy based on fiat money without abandoning the classical notion that the factors determining the profit rate are independent from those that determine the interest rate. It relies on the Marx-Hilferding notion that promotees profit accounts for a systematic difference between the interest rate and the profit rate in the modern economy, and provides an alternative to Sraffa's suggestion of taking the profit rate as determined by the interest rate. This suggestion is the basis for the resurgence of Neo-Ricardian macroeconomics, particularly regarding monetary theory.; This study proposes that both the classical theory of value and distribution and the classical theory of money hold in the modern economy in spite of the breakdown of the gold standard and the development of corporate finance. As a result of these historical developments, price level determination became very complex, involving the rate of interest, the quantity of paper money in circulation, and the exchange rate. It suggests that, among these variable, the most important is the exchange rate, which is a strong anchor for the price level.; The role of the exchange rate as the principal anchor of the price level (instead of the interest rate and monetary control) has been demonstrated by the stabilization experiences of Austria, Hungary, Germany, and France after Word War I and some Latin American Countries in more recent times. |
