MONETARY CONFORMATION OF THE CORPORATE GOVERNMENTALITY III DESCRIPTION OF THE MONETARY SYSTEM

Abstract

This paper describes the current monetary system, identifying different components and the relationship between them. It is part of the Foucaultian approach of power relations and forms
part of a body of work on the monetary conformation of corporate governmentality. It also forms part of the theoretical framework: the general monetary theory and, in particular, the quantity
theory of money and the theory of business cycles. It describes four major components such as international organizations with effects on the money supply, states from dominant or dominated
economies, the economy of large financial and non-financial companies and the real economy,
made up of families and small and medium size companies. Within these four main components, there are different levels of action and influence in the money supply. The relationships, that are addressed, are the relationships which occur within each one of the components and the relationships between the different components. In these relationships between components of the monetary system, the creation of excess money supply is explained which produced the economic crisis as a result of the structure of the monetary system and its historical conformation. This document also describes the conformation of rent appropriation and yields, together with the process of the concentration of wealth, where the monetary system acts as an essential tool for achieving these purposes by large companies.

Full text

Eurasian Journal of Economics and Finance, 4(2), 2016, 18-41
DOI: 10.15604/ejef.2016.04.02.003
EURASIAN JOURNAL OF ECONOMICS AND FINANCE
http://www.eurasianpublications.com
MONETARY CONFORMATION OF THE CORPORATE GOVERNMENTALITY III
DESCRIPTION OF THE MONETARY SYSTEM1
Eduardo Rivera Vicencio2
Autonomous University of Barcelona, Spain. Email: eduardo.rivera@uab.es
Summary
This paper describes the current monetary system, identifying different components and the
relationship between them. It is part of the Foucaultian approach of power relations and forms
part of a body of work on the monetary conformation of corporate governmentality. It also forms
part of the theoretical framework: the general monetary theory and, in particular, the quantity
theory of money and the theory of business cycles.
It describes four major components such as international organizations with effects on
the money supply, states from dominant or dominated economies, the economy of large
financial and non-financial companies and the real economy, made up of families and small and
medium size companies. Within these four main components, there are different levels of action
and influence in the money supply.
The relationships, that are addressed, are the relationships which occur within each one
of the components and the relationships between the different components. In these
relationships between components of the monetary system, the creation of excess money
supply is explained which produced the economic crisis as a result of the structure of the
monetary system and its historical conformation.
This document also describes the conformation of rent appropriation and yields,
together with the process of the concentration of wealth, where the monetary system acts as an
essential tool for achieving these purposes by large companies.
Keywords: Monetary System, Rent Appropriation, Concentration of Wealth, Corporate
Governmentality, Monetary Theory, Quantity Theory of Money, Money Supply and Crisis
1. Introduction
The development of the monetary system is the product of a historical conformation and a set of
power relations which were configured through enforcement, inter-relationships and resistance
of these powers. In this way, the monetary system gave financial support and acted as a
fundamental tool in the process of monetary creation of corporate governmentality.
1 This article was completed in October 2015.
2 Eduardo Rivera Vicencio is Professor of the Department of Business and Economics at the Autonomous
University of Barcelona, Committee Member of the ACCID Management Accounting Commission
(Associació Catalana de Comptabilitat i Direcció/Catalan Accounting and Direction Association), Editorial
Board Member of the International Journal of Critical Accounting (IJCA), Editorial Board Member of the
African Journal of Accounting, Auditing and Finance (AJAAF), President South American Research
Section of the Critical Accounting Society, and Business Consultant.

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This paper discusses how the current monetary system works, establishing the general
basis on which it acts, the description of the components conformed and the relationships
generated between the different components of this system. This paper however, is also placed
in the context of several previous papers on corporate governmentality and, therefore, forms an
integral part of it.
This description is developed within the framework of the monetary theory of business
cycles and the quantity theory of money and, at the same time, within a larger framework of the
Foucaultian approach of relations of power and which incorporate in these power relations the
theory of the dominant economy of François Perroux.
Regarding the different components of the monetary system the following aspects are
considered: the international monetary and economic agencies which in one way or another
affect decisions about the money supply, the dominant and dominated states, the economy of
large financial and non-financial companies and, finally, the real economy where the families
and small and medium size companies are found. In the particular case of the economy of large
companies, despite the existence of a difference between financial and non-financial types,
which could lead to a separation of components which they jointly address, given the
concentration and linkage to between both types of companies. Similarly, this document
discusses as a whole the relationship between dominant and dominated States and the different
scales that can be defined within, with the exceptions of the monetary effects between them and
other States.
It is also important to highlight the separation of dominant and dominated States, in
function with the number of companies having a State with global economic importance, which
in turn could generate the influence of one State from the rest. That is to say, it is the power of
the companies, their financial capacity and their relevance in sectors such as energy, among
others worldwide, given the relative weight of the dominant or dominated State. The strategic
value of a State depends on the number of the largest companies worldwide that have their
headquarters in this State and where the State is a mere observer and facilitator of the process
of concentration of wealth, pending further benefits for the whole State, losing sight that the sole
purpose of the company in maximizing their own profits. To this must be added the volatility in
the composition of the largest companies worldwide, change of State or lose position,
depending on the objectives of profit maximization, the emergence of new concentrations of
wealth (fusions) or profound changes in the world's monetary structure, as has happened
historically.
Finally, the description of the monetary system that is developed in this paper will be
highlighted with the central objective of describing the state of affairs from the point of view of
the monetary system, the concentration of wealth.
2. Theoretical Framework
The archaeological methods registered in general history deal with the regularity of statements
that gave rise to different discourses and refer to a particular time, giving place to knowledge
which the role of science takes; it could also be expressed as the method analysis of local
discourses. Jointly and intertwined with the archaeological methodology is the genealogical
methodology with the detailed monitoring of power relations and how the tactic set in motion the
emerging knowledge which were now free from subjugation, from local discourse (Rivera
Vicencio, 2012).
Starting from this methodological basis, and furthermore, as a way of going into more
detail of what has been called “corporate governmentality and rent appropriation”, where the
role of privatization has played a key role, they approach the historical and social development
of multiple power relations that have shaped this corporate governmentality, where money plays
a central role in the process of privatization; (Rivera Vicencio, 2014) and where the international
monetary system has acted and acts as a tool of these privatization processes.
Together with the Foucaultian focus as a backdrop and the establishment of Corporate
Governmentality appropriation of rents and yields and, in addition, as a tool to explain the
creation of money and the IMS (International Monetary Systems), this paper will use the

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Quantity Theory of Money attributed by Irving Fisher (1911). Although the origins of the quantity
theory of money correspond to the XVI century with Jean Bodin3 (1530-1596) and later
contributions from David Hume4 (1711-1776) with critics such as John Law5 (1671-1729), John
Stuart Mill6 (1806-1873), Knut Wicksell7 (1851-1926) and Wesley Clair Mitchell8 (1874-1948).
However, its strong development in the 19th century, starting with David Ricardo9 (1772-1823)
and Karl Marx10 (1818-1883), whose work make many references to money and which would be
formulated by Irving Fisher11 (1867-1947) as the quantity theory of money. But rigorous analysis
of this theory lie in the studies of Fisher and Arthur Pigou12 (1877-1959), among other authors
who have subsequently made valuable contributions and criticisms of this theory, and which are
cited in this paper.
The Quantity Theory of Money is postulated as the proportional behavior existing
between money and the price level through two schools of economic thought which focus on the
role of money as a medium of exchange. The first is the microeconomic approach, which
concentrates on the components which motivate individuals or agents individually to hold
money in their possession, the instant market equilibrium between the demand for money (Md)
and money supply (Mo), that is to say, Md=Mo. This microeconomic approach is also known as
the focus of Cambridge and is initiated by Alfred Marshall13 (1842-1924) and, in more detail, by
Pigou (1917).
The second, the macroeconomic approach postulated by Fisher (1911), with the
emphasis on institutional factors that make up the means of payment, aggregate demand for
money, where the money circulating in the economy (M), multiplied by the velocity or turnover of
money (V) is equal to the price of goods exchanged (p) by the amount of goods exchanged (Q),
that is to say, MV=pQ.
Now, if this formula is seen at the aggregate level in the economy, pQ could be
expressed as ps (price level) and Qs, the sum of all transactions in a given period (one year),
MV=psQs or to express the sum by “S”, can be expressed as: MV= SpQ.
(1) In this way, if V and Qs remain unchanged and a variation of M occurs, the same
proportion of ps must vary, some of these will have to vary more than others to compensate for
variations between them and maintain the overall equality.
(2) If M and Qs remain unchanged and a variation of V is produced, the same thing will
occur as in the previous case; that is to say, the same proportion of ps will have to vary, some
of these will need to vary more than others to compensate for variations between them and
maintain the overall equality.
(3) If M and V remain unchanged and a variation of Qs occurs, the same thing will
happen again as in the two previous cases and will have to vary in proportion ps; but if the
change occurs only in one of the ps, some of them will have to change more than others to
compensate for variations between them and maintain the overall equality. These three
relationships are what Fisher (1911) called the Quantity Theory of Money.
3 Jean Bodin (1568), Paradoxes of Mr. Malestroit touching the fact of currencies and the enrichment of all.
4 David Hume (1752), Political Discourses.
5 John Law (1934), Collected Works, published by Paul Harsin, Volume I.
6 John Stuart Mill (1848), Principles of political economy.
7 Knut Wicksell (1906), Lectures on political economy.
8 Wesley Clair Mitchell (1927), The Present Status and Future Prospects of Quantitative Economics.
American Economic Association. Mitchell shared the same methodology as Fisher.
9 David Ricardo: (1817), On the Principles of Political Economy and Taxation.
10 Karl Marx (1857), Grundrisse (1867), Capital Vol. I (1885), Capital Vol. II with Engel (posthumous) and
(1894), Capital Vol. III with Engel (posthumous), amongst others.
11 Irving Fisher (1896), Appreciation and interest.
12 Arthur Pigou (1917), The Value of money.
13 Alfred Marshall (1890), Principles of Economics.

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One could also further simplify this side of equality (psQs), representing ps for P, as the
weighted average of all prices and Qs by T, which represents the magnitude of the volume of
trade, therefore, MV=PT. Fisher also makes economies extend these formulations incorporating
foreign trade which specifies that there will not necessarily be equal because of their differences
in the balance of payments from one country to another, but by adding inflows and outflows
transfers of cash flows, this theory will also be applicable (Fisher, 1911), (Slahor et al., 2015).
Subsequently, the Quantity Theory of Money has had very valuable contributions,
among which we can highlight the following:
1. Keynes identifies three reasons why individuals are induced to maintain cash
balances held; (a) conducting transactions, covering gaps produced between revenues and
expenses generated, (b) to deal with unpredictable situations or unplanned expenses, this case
is linked to the next, unused surplus and (c) financial speculation which is the result of the
uncertainty of macroeconomic variables and trends of money. This analysis is simplified with a
single interest rate (Keynes, 1936).14
2. Friedrich A. von Hayek belongs to the third generation of the Austrian School, critic of
the Quantity Theory and Wicksell's stance regarding monetary equilibrium. Hayek raised the
neutrality of money which left out of its analysis the relationship between the money supply and
the price level and its study focuses on the effect produced by currency fluctuations in relative
prices and the structure of production and employment. His argument is based on a constant
money supply being maintained, the neutrality of money and which, therefore, will not alter
relative prices or production structures.
His argument was based on that a constant money supply must be maintained so that
money would be neutral and therefore in this way would not alter relative prices or production
structures (Hayek, 1931). Hayek was also a student of Mitchell and used certain of his elements
in his later research on time series, with the help of Ludwig von Mises (Hayek, 1999).
3. Knut Wicksell, in his theoretical approach to the Quantity Theory of Money, refers to
the involvement of three different agents or levels which are called consumers, producers and
banks, where the monetary system is managed by the private sector and in turn is organized by
a central bank, which in turn exerts the work of custodian of the country's reserves, ensuring the
circulation of metallic money and paper money. His work is mainly aimed at explaining the
mechanisms between money and prices (Wicksell, 1935).
4. William J. Baumol15 and James Tobin16 (1918-2002), using inventory models as the
basis of their approach, developed a theoretical approach for optimizing the demand for money,
as opposed to the original Keynesian model; this model showed that the demand for money
transactions depended on the interest rate. The model considers that an individual receiving
their income at the beginning of the month and where expenses have to be carried out during
the month, the individual may choose not to levy any additional performance, keeping the
money in a checking account or in the form of bonds with a positive return.
Tobin individually developed the theory of speculative demand for money or the portfolio
selection theory, based on Keynes's theory of speculative money. The model refers to an agent
assigning his wealth between risk-free assets and risk assets which, in the latter case, the
return exceeds the first (possible positive return or potential loss). That is to say, to risk aversion
they find it best to keep the money (performance and zero risk), although they do not get any
additional return. On this basis, people or agents decided to diversify risk. Tobin, like Keynes,
agreed that the speculative demand for money is a function of the decrease in the interest rate
(Tobin, 1958).
14 Keynes, J. (1936), Chapter 18.
15 Baumol, W. (1952): The Transaction Demand for Cash: An Inventory Theoretic Approach. Quarterly
Journal of Economics Vol. 66 p. 545-556.
16 Tobin, J. (1956): The Interest-Elasticity of Transaction Demand for Cash. Review Economics and
Statistics, Vol. 38, p. 241-247.

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5. Milton Friedman unlike Keynes, who claimed that money had few substitutes,
affirmed that money had many substitutes but was imperfect. Regarding the Quantity Theory of
Money, Friedman argued that the demand for money did not have to be justified by particular
reasons, treating money as an asset more in the general theory of demand. The model of
Friedman incorporated the budget constraint of the economy and, in this way, a monetary
increase generating an excess demand in the bond market and/or goods, therefore the money
supply through the interest rate on the purchase of durable goods (Friedman, 1956).
From the 1950s, formal models of demand for money began to be developed in an
inter-temporal, dynamic and general equilibrium resulting from optimization processes in an
economic agents’ context. Among them we can point to models such as, money according to its
function (Sidrauski, 1967), transaction costs models based on the Baumol-Tobin model,
highlighting Clower (1967), Niehans (1978), Jovanovic (1982) and Romer (1986), (Walsh,
1998); the search models are used to explain the existence of fiduciary money, where it is
emphasised that an individual will accept to keep this money, because the rest of society also
accepts it. Jones (1976) and Diamond (1983), overlapping generations models, based on the
coexistence of people of different ages and where decisions are adjusted according to their
stage in the life cycle is based on Samuelson (1958) and, finally, the model of currency
substitution and demand for money in open economies, refers to the demand for outside money
in inflationary periods, both with individuals as well as with countries, but also once the
inflationary period has passed, the persistence is further noted to keep outside money, as
thought by Giovannini and Turtelboom (1992).
In developing the Quantity Theory of Money, one must bear in mind the historical
moments in which certain contributions of the theory arise, considering the historical and
prevailing power relations in context of that particular historical moment.
It will also be addressed in this paper, as it relates to the Quantity Theory of Money, the
theory of the long economic cycles, in which Nikolai Kondratiev (1892-1938) - whose surname
can also be written as Kondratieff and how it is found in many books of economic literature -
who offers the most pertinent long movement analysis, which “establishes the existence of
“successive waves” lasting approximately fifty years, and comprising a phase of rise and a
phase of fall of prices and interest rates” (Niveau, 1971, p.128). But it was Clément Juglar
(1862), who previously initiated the study of crises and their frequency as a process stage in the
rise and fall of prices in 186217 and Arthur Spiethoff (1873-1957), in about 1920, who referred to
the short cycle times and greater cycles, involving the expansion as a consequence of
increased capital investment.
Joseph A. Schumpeter (1883-1950), referring to his work as a theory of crises, defined
as an explanation the phenomenon of recurring economic fluctuations, explained by business
activities, where “every boom is followed by a depression and a depression by a boom.”
(Schumpeter, 1957, p.214). Although Schumpeter, expressed that his “theory does not belong
to the group of seeking the cause of the cycle in the monetary and credit system” and is
included in this paper, for the tangential aspects relative to the Quantity Theory of Money.
(Schumpeter, 1957, p.213-230).
Over time, several authors have referred to economic cycles, from different approaches,
for example; the secular changes in production and prices, the economic development and the
accumulation of infrastructure, the result of waves of technological innovation, based on
changes in the functional distribution of income derived from the terms of bargaining power
modified in periods of high growth rates, cycle in the short term and very long-term analysis of
the stages of development of capitalism, and the Keynesian theories which express demand
factors (Bernard et al., 2013, p.13).
The link between the Quantity Theory of Money and theory of business cycles is the
recognition that “a certain relationship between monetary expansion and economic growth has
always existed. The relationship is not close and does not imply, in any way, a simple causal
17 Juglar, C. (1862), Commercial crises and their periodic return to England and the United States. Paris.

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relationship. Monetary expansion does not ensure economic growth automatically. However, it
can be stimulated.” (Triffin, 1962, p.84).
Also from the theoretical point of view, this paper introduces the concept of the
dominant economy of François Perroux, referring to the domination exercised by certain
monopolistic or oligopolistic in other economies, supported the State in which they are
embedded (Perroux, 1961).
With this theoretical framework, this paper discusses the current functioning of the IMS
in order to establish the state of affairs from a critical perspective.
3. Description of the International Monetary System
Vilar states that if economists from the 1920s poorly understood monetary instability and played
with “new”, it is because they took as a reference something that happened in recent history. If
they had evoked the 14th or the 17th centuries, they would have known what devaluation was.
(Vilar, 1974, p.6).
3.1. Debt-Money
To make a correct description of the IMS, the first thing to be said is that printing money is in the
hands of private companies (financial institutions) (Rivera Vicencio, 2016), where approximately
97% of the money is virtual money or debt-money. In modern economies there are three
limitations that restrict the amount of money banks which can create:
a) The banks themselves face limits on how much they can lend; firstly, by market
forces that restrict loans because banks have to be able to lend profitably in a competitive
market; secondly, loans are also limited because banks have to take steps to mitigate the risks
associated with new additional loans; and thirdly, the acts of regulatory policy acts as a
constraint on the activities of banks in order to mitigate the accumulation of risks that could
threaten the stability of the financial system.
b) The creation of money is also limited by the behavior of holders of money -
households and businesses. The households and companies receiving the money created
could respond by making operations that are immediately destroyed, for example, by paying
outstanding loans.
c) The final restriction on the creation of money is monetary policy. By influencing the
level of interest rates in the economy, the Central Bank affects how households and companies
are willing and able to borrow. This occurs both directly, through influencing the loan with
interest rates charged by banks, but also indirectly through the overall effect of monetary policy
on economic activity in the economy. As a result, the Central Bank is able to ensure that money
growth is consistent with its goal of low and stable inflation (McLeay et al., 2014).
The article refers to the Bank England; however, this is the reality for any currency of
international exchange. Part a) of the preceding paragraph refers to the forces of a competitive
market but in reality there is no such competitive market, the financial system is clearly an
oligopoly and its behavior at a global and national level is a poster sets its own conditions in all
international and local financial aspects. With regards to the credit limitation associated risks, it
is also questionable, as can be seen with loans to families who could not pay their mortgages
and then transforming these bad credit derivatives that the cause of the huge crisis still persists.
Regarding regulatory policy, described in the previous paragraph, it is clear that the regulation is
almost nonexistent and the only regulation is perhaps the product of self-regulation of markets
invasion between national and international financial institutions. Part b) of the preceding
paragraph would be only real restriction produced with the renegotiation of credits or payments
made by companies and/or families from one institution to another. Finally, part c) refers to the
product constraints of monetary policy, such as interest rate. But we must not forget that the

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hard currency interest rate at a world level and influential in other currencies is the dollar; whose
interest rate is set by the FED and what defines FED policies are the same large private federal
banks and that at present, with high levels of debt of countries, a rise in the interest rate would
lead to even higher debt levels and a fall in the value of stocks worldwide, as will be explained
in this paper. With respect to controlling inflation, this is more than a policy imposed by
governments through monetary policy; it is a policy of large companies and the financial system
which participate in large non-financial companies as a control mechanism and control salary of
its cost structure.
3.2. The Theory of Dominant Economies
A second aspect of the IMS to be previously considered is the existence of dominant and
dominated economies, which in turn are in different hierarchies within these two major
classifications. In the theory of the dominant economy, Perroux (1961), through a text extracted
from the USA Commerce Department (Lary, H. and Associates, 1943)18 summarized as
following:
“The economy of the USA is a group of companies that exert dominating effects regarding various
key products. These groups are linked to banking and financial centers: a) Considering each one,
one by one, they have huge dimensions and a contractual strength to put them in a favorable
position with respect to similar foreign centers; b) Taken together, they have three exceptional
factors which influence; the contractual strength of the United States, the size of the American
investment offer in relation to the global supply of investment, investment that summarizes
economic “zones” eminently active at all times and particularly in the reconstruction phase”
(Perroux, 1961, p.74).
What Perroux called the “domination effect” and “dominant economic unit” as explained
by the relationship that develops between two economic units, where A has an effect of
domination over B, disregarding any particular intention to A, A exerts a certain influence on B,
but B cannot exert the same influence on A. Where there is also an asymmetry or irreversibility
of principle, both in terms of relationships planned intentionally or unintentionally. In the case of
unintentional relationships, a decrease or an increase of A, caused for reasons totally beyond
the control of A, produce the same effect on B, with no reverse effect or which does not exist to
the same degree (Perroux, 1961).
“The historian and sociologist could lend a precious service showing how the world's
economic growth has been carried out by the action of national economies -continental or
maritime- successively dominant” (Perroux, 1961, p.40). Hence the historical effort of this
document in relation to the IMS, which has described the formation of the latter, with historical
details that show the existence of a dominance effect and a dominant economic unit is clear.
Sociologically the manifestations of power relations have also been addressed and discourse,
at the level of knowledge and power, from discipline, from ethics and the formation of
governmentality and all these manifestations explained through the archaeological and
genealogical methodology of Foucault's approach. Even though the Department of Commerce
Document itself recognizes this and, as a lawyer would say; “Where there is a confession, you
need no proof”. Historical and sociological evidence is provided in documents being published
on monetary shaping corporate governmentality.
These effects of domination and the clear existence of a dominant economy have
determined the formation of the current IMS and also made the monetary economic theory that
justified it.
18 The United States in the world economy: The international transactions of the United States during the
interwar period. Prepared in the International Economics and Statistics Unit by Hal B. Lary and associates
with a foreword by Wayne C. Taylor, Washington. Sold by the Supt. of Docs., U.S. Govt. Print. Off., 1943.

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3.3. The Economic Cycles Theory
The third descriptive component of the IMS is the theory of business cycles. These cycles or
fluctuations are caused by fluctuations in economic activity and generate booms and busts.
According to Hayek (1936), these economic cycles can be explained by monetary theories and
non-monetary theories (endogenous cycle theories of exogenous cycle theories). With regard to
the latter, Hayek says, “It cannot have any way to analyze the theories that seek to interpret
cyclical fluctuations by matching cyclical variations in certain external circumstances, merely to
use indisputable methods of the equilibrium theory to explain phenomena that are deduced from
such variations” (Hayek, 1936, p.63); therefore, it is preferable to exclude the analysis theories
whose argument is based entirely on monetary change which, if they are eliminated, it removes
all explanation.
These theories attempt to explain, in one way or another, that the oscillations of the
consumer, or of any other items, are followed by changes in production, but not just because of
fluctuations in the production of means of production which must be explained, the real problem
is that inevitable and irregular fluctuations of the rest of the economic system arise affecting the
producing industries means of production. The current ideas of economists have attempted to
explain how the causes are the theory of production and savings-investments but from a non-
monetary character and psychological theories (Hayek, 1936).
In the monetary theories of the business cycle, it is about finding the monetary influence
on the elasticity of the volume of money (quantitative variations) for the existence of rigidness
between savings and fixed capital formation, in order to show why and how these monetary
influences cause regular disturbances in this part of the economic system. Although Hayek
agreed with the idea that fluctuations are directly dependent on changes in the value of money,
a “theory of the fluctuation of the money is dangerous, in part, because it always leads to
misinterpretation, but mostly because it seems to place on the front line a side effect of cyclical
fluctuations; an effect that usually accompanies them, but is not forced to do so” (Hayek, 1936,
p.105). An important contribution to monetary theory of the business cycle was conducted by
Lowe (1928) who expressed that this theory must be based on monetary conditions of
fluctuations in the price level and, therefore, a fall or a rise in the price level should be caused
by monetary circumstances. Also, Hayek, just like Lowe, gave limited access to the statistical
methods of analysis cycles and agreed that this theory must be deductive and should explain
the phenomena observed in cycles, with all its peculiarities (Hayek, 1936).
However, clarification of Lowe, accepted by Hayek, provided even greater clarity to this
issue and stated that, the nature of the changes in the composition of the amount of existing
goods, which are caused by monetary changes, depend on the point in which it injected money
into the economic system. The point of contention between these authors is given because
Lowe and attributes that the product cycles are only wrong measures; Hayek, on the other
hand, attributes that these were not the only reasons, but to the needs of the monetary
mechanism and credit (Hayek, 1936).
This is where the differences begin to be ideological. The Austrian School, to which
Hayek19 belonged, while recognizing that the disturbances originated from endogenous factors
in the organization of the system, totally rejected state intervention in remedial policies or
measures countercyclical. But despite these marked lines of study, the real economy
incorporated both tendencies in varying proportions depending on its position as the dominant
economy or the dominated economy.
In this third component is the quantity theory of money in its basic theoretical
formulation (Fisher, 1911) which was used as the backbone for this description of the IMS. In
19 It needs to be remembered that Hayek was a student of Mises and the latter was a fervent opponent of
socialism, a position also adopted by Hayek, and formed institutions to spread their ideas and opposition
to socialism and converted to the philosophical inspired neo-liberalism. The monetary field also influenced
Milton Friedman and both went to the Chicago School at the same time.

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addition to the later theories that have influenced the formation of the current monetary system,
such as: the monetarist and neoclassical approaches that reject State intervention, models of
endogenous factors, such as the Keynesian theories that combine the first two models, models
of the Austrian School and models of an exogenous nature, as well as the models of actual
cycle models with rational expectations.
3.4. Monetary System Components
A fourth component in which this paper is based on to describe the current IMS is the
components listed in this system and which are derived from the theoretical component, such
as the separation between the real economy and the economy investments. The real economy
is made up of families, small and medium sized businesses which generate savings, voluntary
or involuntary, which can participate or not in the market of investments indirectly and do not
affect the money supply directly, except as users of the financial system. On the other hand, the
investment economy consisted of large companies (bondholders, generating equities and
derivatives), of a local and international financial nature (commercial banking and investment
banking) and non-financial national or multinational companies, the various industries of the
economy, where these large companies enjoyed oligopolistic or monopolistic markets locally
and in some cases worldwide, but also often in the collusion of oligopolistic markets. Large
companies could create money-debt afflicting the real economy, as well as the economy of
investments. Financial arrangements and scavenge savings in the real economy can, in turn,
create capture resources (savings) into the real economy. Behind these large companies, there
are individuals and/or families with property and concentrated wealth.
Between these two economies there is a steady cash flow in both directions, as well as
within them, where some of these movements of money can increase the money supply, but not
necessarily all, as some of these increases may be accompanied by a decrease in the money
supply, such as the payment of a debt.
The two economies are inserted independently and, in turn, relate to each other, the
quantity theory of money, expressed through equality of Fisher, which represents the behavior
between money and the price level in each of these independent economies, but interacting.
In this relationship between the two economies, there is a “State” that serves as a
regulator of these relations, which has a structure to coordinate this policy, legislative and
regulatory or disciplinary in nature. Its intensity in the regulatory function is a function of how it
has shaped the State and the influence it has on the regulatory activity, which may be more or
less permissive for one or other of the economies involved. Within the structures of the State is
the Central Bank, which is normally responsible for creating money, however this work can
develop it through the minting institutions in the country or a third party, but the amount of
physical money (to differentiate money-debt) reports directly to the Central Bank. In the case of
the European Union, the European Central Bank is responsible for determining the amount of
money printed as physical money, even though the printing and/or minting can delegate to third
parties and, in the case of the USA, physical money is created by the FED which is the union of
private federal central bank, where the government is involved by naming the directors and the
presidency and which, in turn, sends physical money to be printed in the factory (Bureau of
Engraving and Printing Western Currency Facility), a great part located in the city of Dallas, with
another part printed in Washington D.C.
Finally, this component as the last of the components, involved international agencies,
whether related to monetary matters, as in purely political matters, but with monetary effects. Its
fundamental activity is oriented to act in the relationship between States and where their
decisions have an impact on monetary matters relating to individual states and, in turn, the
relationship between the economies defined within a State. In these international institutions
participated many of the countries even though there were countries with great economic
importance at a global level that were not involved or had been excluded, although you could
see they were usually affected by the decisions made within these organizations.
Also in these organisms, as seen in documents on the formation of corporate
governmentality, there is a strong dominance of one or a small group of States in the decisions

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made or rights of veto of any State of the decisions adopted. These agencies are the IMF, the
World Bank, the Bank for International Settlements, the European Union, WTO, UN etc., which
also formed part of these multilateral agreements organisms with effects on world trade and the
economies of the States. For example, the UN General Assembly of the United Nations on 27th
October 2015, returned to vote against the economic, commercial and financial embargo
imposed by the USA to Cuba since 1962, with a result of 191 votes in favor of eliminating the
blockade and two votes (USA and Israel) against. This situation has been voted on every year
since 1992 and has garnered more votes in favor of lifting the embargo and the blockade
persists, with the serious effects this means for a small country. Here it can be appreciated that
even though there was an overwhelming majority, the dominant economy continues to
implement its unilateral approach and therefore the international organizations cannot exert any
pressure or demand a respect for the decisions of the Assembly. The same happened in the
war against Iraq in the Security Council of the UN in 2003, where the USA with a minimal
support (from Spain and the UK) invaded Iraq. The arguments that were used for the invasion
ended up not being real, but the consequences still remain with the number of deaths,
ownership of resources, destruction of the economy, the current instability in the component
and all its economic effects. Although these decisions were not directly monetary, they had
monetary effects in blocked or invaded countries, which in turn have had monetary effects in
mainstream economics, where the defense industry20 is of great importance and the funding of
wars generated costs to be borne borrowing by the country, which in turn affected the global
monetary system by increasing the money supply proceeds from the issuance of bonds.
4. General Aspects in the International Monetary System
The general aspects of the description of the International Monetary System (IMS) are:
1. The almost total reliance on private companies or private financial institutions, given
the objectives of the private business of maximizing their profits, to take precedence over the
proper functioning of the system. Hence, the repeated crises that have taken place throughout
history in different countries and in dominant economies, with an increasingly global impact, and
that the decisions that these companies take adopt their particular premium interest. This is how
the crisis has served to help concentrate wealth in selected markets throughout history; on the
one hand buying at depressed prices certain companies or receiving state aid, on the other
hand, due to them being too big to fail, as it has been especially said in the last crisis. Yet, if
they are too big to fail, it is because they conform to an oligopolistic market and an important
coordinated pressure group that can impose certain policy decisions to their advantage, making
this system work inefficiently.
2. The States have a strong historical dependence on these private companies and the
financial system at a national and international level, as they are a source of financing and
currently maintain high levels of indebtedness, which makes them more subject to global and
local economic power. This makes the system work even more on criteria of private financial
institutions and according to their interests of concentration of wealth, from the State to act as a
mere facilitator of the interests of financial companies.
3. The existence of dominant economies and dominated economies makes the system
work in favor of major world capitals concentrated in certain States that facilitate their operation
and economic magnitudes measured in terms of GDP (Gross Domestic Product), plus the
influence these institutions have over international organizations, which causes an increasing
20 Military spending, as a percentage of central government spending in the USA rose to 16.5% in 2013,
although in 2011 it was 18.2%, according to the World Bank, accessed on October 30, 2015. Available
from: http://datos.bancomundial.org/indicador/MS.MIL.XPND.ZS/countries

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expansion of the gap between developed and underdeveloped countries. Not only does this
make the monetary system inefficient but also unfair.
4. The arbitrary exclusion of certain economies which do not accept the total
subjugation of the great world capitals in international organizations that are part of the global
monetary system is what ultimately can lead to major changes in the system. For example, the
BRICS (Brazil, Russia, India, China and South Africa) have created an alternative bank
equivalent to the IMF - the Asian Development Bank (ADB) and the Contingency Reserve
Agreement (CRA) plus the Asian Infrastructure Investment Bank21 (AIIB) with 57 founding
member countries without the USA. In the same vein, China22 has reported that it soon will
launch its own service, an alternative to SWIFT (Society for Worldwide Interbank Financial
Telecommunication) for international payments. To this must be added that there are
agreements between the BRICS and others are joining this position, placing their transactions
with their own currencies, with important international agreements between the BRICS countries
and other countries in the region, Africa and Latin America. Against this background, it is likely
that it is forming a parallel alternative to the existing IMS, increasing tension between the USA
which sees losing its global dominance and the BRICS, mainly Russia and China. There is also
the possibility of the incorporation of the Yen in the SDR, which would enhance China's23
position in world markets, but it may also be a strategy to delay the formation of a parallel
system, where the countries of BRICS as a whole would play a very important role at a global
monetary level. A parallel currency system would be beneficial to the dominated countries,
increasing trade opportunities, where the very creation of a parallel system would lower the
value of the currencies of current world trade, as well as, fighting currency which could generate
the possibility of creating a global payment currency. But if an additional monetary system was
formed similar to what exists today, in other words, exclusive, inefficient and unbalanced, the
BRICS countries would lose a great historical opportunity. Finally in this regard, it should
consider that China acts very slowly but firmly when making positions and do not have a war
record, which could mean that they will make firm but slow steps and avoid conflict.
5. The historical demand of many countries to reform the IMS. This position has been
supported by several economists throughout the 20th century24; firstly, when the gold standard
met with developmental difficulties and required increased money supply due to the need for
growth of the economy or when excess gold reached the USA in World War I, which led to
serious imbalances in a country not prepared in their domestic financial system and which
worsened the situation with the creation of the FED. The change to unilaterally inconvertibility
was produced by the USA in 1971, which made the system continue to be inefficient, especially
for those countries not included in the SDR and the dominated countries. The system has only
been useful for capital operating in the international monetary exchange, but neither has proved
useful for the inhabitants of the countries where these capitals are localized, by heavy
appropriations and consequent price increases on some goods and services that they have to
endure.
But the great importance of the gold standard is that much of the existing theoretical
basis for monetary economics has its foundations in this period and today with little nuances
21 Including the UK which from 2004 onwards has been increasing its trade with China and China has also
increased its investments in the UK at a rate of 85% annually since 2010.
22 According to SWIFT, the Yen is now the second most widely used currency for trade finance and the
fourth most requested currency to make cross-border payments.
23 On 30th November 2015, the FMI incorporated China in the countries included in the SDR, a situation
will take effect from 1st October 2016. In addition, in December 2015 countries were allowed to have
outstanding loans to pay and also qualify for IMF financing, a modification aimed at financing countries
with overdue debt with countries outside the orbit of the West, as in the case of Ukraine who have an
unpaid and overdue debt as of 31st December 2015 with Russia; a situation that China could have in the
future with its creditors, trying to weaken the countries outside the USA and their economic allies.
24 Some of the economists who raised alternate systems to the gold standard are Fisher, Carl Snyder (The
Stabilisation of Gold: A Plan in American Economic Review), Keynes and Triffin amongst others.

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from the Austrian approach of the endogenous monetary cycle. This approach explains the
recurring economic cycles of boom and bust and is the result of processes of credit expansion
of banks through debt-money (fractional reserve) (Alonso et al., 2011). This credit expansion,
not backed by real savings, is what gave rise to artificially low interest rates, leading to an
excess of long-term investment that the market cannot absorb and also generated a speculative
phase in the stock market, causing increases in the value of unreal actions, as well as
disproportionate increases in real haven as gold (now quite controlled by the financial power) or
the real estate sector.
However, one should not forget that the measures inspired by the Austrian School is
what created the problem and now, with the same theoretical solutions and a renovated version
which aimed to solve the imbalances created, it has become mainstream and has met the
interests of finance capital. The problem is that much of monetary theory used was adapted to a
different reality; Hayek who inspired Friedman (although he is disowned by Hayek), based his
studies on an international gold standard and in 1975, even knowing its faults, ended up
defending it against an alternative system and was quite clear, “I am absolutely convinced that
any attempt to return at this time to establish the gold standard, through an international
agreement, would be broken soon after and would merely serve to discredit, during a long time,
the ideal of an international gold standard” (Hayek, 2001, p.120) despite the fact that the
economy in 1928 advocated the principle of free choice of currency and considered the gold
standard a transitional means of waiting for an ideal solution (Hayek, 2001). Friedman took
many of the theories of Hayek and forced a dollar standard or debt-money reality. But both
Hayek and Friedman have blamed imbalances and inefficiency of the monetary system of
government intervention, which in turn has influenced the further liberalization of the financial
market, causing major imbalances which exist to date and today we are in a spiral of
concentrated wealth and unstoppable corporate governmentality.
5. Specific Aspects in the International Monetary System Description
Specific aspects of this description will continue to be discussed; they will be made through the
interrelation with the different components of the IMS, and even with their own relationships with
these components with other components of the same type. But its performance will also be
considered and will depend on the degree of dominance that the economy had, which will be
analyzed, that is to say, the degree of domination or the dominated economy.
5.1. The Relationship between International Organizations and the State
This relationship is given in two different directions depending on whether the economy is
dominant or dominated. In the case of the dominant economies, they are those that impose
certain policies that these organizations must impose on the dominated countries. On the other
hand, dominated countries become recipients of these policies and these are imposed on them
in terms of suggestions which, if not applied, limit for example access to credit and debt
negotiations. Two examples of these impositions in recent years are Spain and Greece. In the
case of Spain, it had to change the Constitution to implement preferential debt position of the
creditor banks. In the case of Greece, it was forced to privatize a group of companies to
refinance its debt.
A case with a more generalized effect on economies is to control inflation, imposed
through IMF “recommendations”.
a) This control of inflation is only applied to the real economy, which means control of
wages and inputs (goods and services) that the large company supplies small and medium
companies and therefore to maintain control stable costs of big industry, facilitating rent
appropriation and yields in the real economy. This also facilitates the entry of foreigners to the
capital appropriation process, which is also another recommendation of the IMF (other
institutions are also used to exert this pressure as the Bank for International Settlements).

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Moreover, this cost control also benefits SMEs, but this cost saving is appropriated by the
financial sector, by increasing interest rates, justified by higher credit risks.
b) The inflation indicator is inefficient because it includes or excludes certain products
and/or services concerned in the basket calculation, as well as the weight of the products
included in the basket do not necessarily represent the reality of the components in the real
economy, among many other problems of statistical data.
c) This policy of controlling inflation has become an absolute faith, almost religious, and
affects the recessionary periods of the economy, given that the inflation control policy, limiting
the implementation of expansionary policies and even forces panel spending which decreases
domestic consumption and limited growth but, on the other hand, frees resources to pay debt,
that is to say, prioritizing debt payment.
d) In these recessionary periods, maintained by the policy applied to control inflation
and the consequent credit crunch, the small and medium sized company is affected with high
debt levels obtained in boom periods, which result in the destruction of businesses leaving
market shares that are appropriate for those with access to credit, resulting in a concentration of
wealth or transfer of the real economy to the economy of big companies, when these medium
and small companies are absorbed by those who have access to credit (corporate cannibalism,
the largest absorbs the medium and small companies).
e) The theoretical justification, in order to sustain the “recommendation” and normalize
(discipline) the economic and political agents, where the latter are the obedient executors of the
“recommendations”.
Friedman (1993) takes as his own, Hayek’s assumption of long term neutrality of
money, where production and employment will eventually resume natural levels that depend
exclusively on real factors rather than currency speculation, which holds a discretionary
monetary policy and becomes the main cause of instability in economic activity. The existence
of an inverse relationship between inflation and unemployment is accepted which can be
exploited by monetary authorities; but the agents lack of inflationary expectations even in an
environment of continuous price growth, although this did not last, because workers discovered
that the absolute prices rise faster than wages and negotiate their wages upwards to recover
the purchasing power. The plucking model of Friedman (1993) argues that full employment
growth is interrupted by an imbalance of monetary policy implemented by governments. (Alonso
et al., 2011).
The basis for these claims by Friedman originated in what has been named the Phillips’
Curve (1958), on Hayek’s neutrality of money (1933) and the forced savings (Hayek, 1933), the
latter ignored by Friedman. Through a study using data from the years 1861-1957, Phillips
determined that there is a negative correlation between the unemployment rate and the change
in wages in the UK, by plotting on the abscissa the unemployment rate and the ordinate rate
inflation earned a downward sloping curve. Hence, the neoclassical model explained this
instability, with the unexpected inflation in the short term which would cause an increase in
production and employment; but, in the long run, this monetary illusion would disappear and
neutrality between inflation and unemployment would occur. In the absence of inflation
expectations, the Phillips curve would adopt a vertical position and would cease to be a
relationship between inflation and unemployment (non-accelerating inflation rate of
unemployment - NAIRU).
For Hayek, the neutrality of money meant keeping the money supply constant.
Producers, therefore, had a cost structure known and only chose to invest new savings which
would stay profitable, even if prices fell, in line with the lowering of production costs. “The
primary cause of cyclical fluctuations must be sought in changes in the volume of money; the
causes are always undoubtedly played and manifested a forgery of the process of price
formation and, consequently, a wrong direction of production. The new element sought to be

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found in the “elasticity” of the volume of money available to the economic system” (Hayek, 1936,
p.118). Hayek then highlights that, if this elasticity of the volume of money is a feature of the
system of money and credit, that is to say, if certain conditions are given they must necessarily
be changes in the volume of money and the differences between the wild type and the
monetary interest rate, or if applicable to causal phenomena of arbitrary intervention of those
responsible for the money supply (Hayek, 1936).
This wanted to reflect that the adaptation made by Friedman of applying a policy of
neutrality of money and stop at a specific point on the Phillips’ Curve did not solve any problems
and even created other more serious problems (see points a, b, c & d of this section). Firstly, in
the context that developed both the neutrality of money Hayek as the Phillips’ Curve,
corresponded to a period of the gold standard, this is of fundamental importance, since the
increase in money supply was subject to existing gold, limiting these increases naturally. This
wanted to apply a theory out of context. Secondly, the application of these theories as a tool of
monetary policy in order to neutralize the money supply, when the money supply depends on
other agents and does not make any sense. It is so much so, that the curb of the money supply
in the real economy does not in any way stop the money supply in what is called economy
investments or large companies, and misdirection of production have recreated bubbles in the
economy without stopping; that is to say, the creation of debt-money system is a feature that
has been formed and its increase is subject to decisions of private interests rather than
economic efficiency. Thirdly, this policy did not slow unemployment; it freed the oscillation of the
unemployment rate and only controlled inflation in the real economy, with the effects described
in this section.
If in this scenario the interest rate is added, or what Hayek called, the difference
between the natural rate of interest and the real interest rate, which is today a type close to
zero, given that the global economic slowdown with some countries with some exceptions,
could be very close to equalize the natural rate of interest to the real, but also generated an
increase in the valuation of shares (given the type of interest close to zero and the impact on
the valuation update projected), and for some time, they tended to go down the expectations of
increase in interest rates by the FED and its impact on all world types. However, those who
leave the stock market today move into investment property in major cities in the world and
which is causing a fictitious rise of these assets in cities like London, New York and others.
Fourthly, Hayek himself in a paper published in 1933 called “Neutrality of Money” says that “the
concept of neutral money was created to be used as a tool for theoretical analysis and should
not in any way, at least in the first instance, be used as a criterion for monetary policy.” (Hayek,
1999, p.318). The relationship between the concept of neutrality of money in the money supply
and monetary policy is the degree of approximation of both. Therefore, “It is perfectly
conceivable that monetary influences result in a “falsification” of relative prices and a complete
misdirection of production if certain conditions are not met; for example, (1) the cash flow
remains constant, (2) that all prices are perfectly flexible and (3) that the future price movement
is expected, approximately, in the long-term contractual agreements” Hayek, 1999, p.320). But
if (2) and (3) are not met, “there is no way at all to achieve the ideal with some monetary policy”
(Hayek, 1999, p.320). This is expressed to clarify certain ambiguities in the way that this
concept of neutral money has been understood and has been used (Hayek, 1999). Finally,
there is the concept of forced savings which is caused by an artificially reduced interest in order
to improve the supply of capital in the economy until the natural interest ends up decreasing the
interest rate of the money, returning the balance and, in this way, completely preventing the
crises. If the money supply can be increased, exceeding the limits of voluntary savings, it
requires that the credit creation process is kept in ascending progression by a steady
progression of the expansion of consumer purchasing power, but inevitably a time will come
when banks cannot continue to increase the pace of inflation necessary in the economy of large
companies (Hayek, 1936). But to keep inflation in the real economy, the consumption could not
increase and capital goods and consumer economy were created but which as a whole could
not be absorbed, generating a crisis. Although Hayek did the analysis considering inflation in
the real economy, the limitations in his case was given by the lending limit of banks in a system
of gold standard, but the result ended up being the same, “it is probably more appropriate to

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consider forced savings the cause of the economic crisis than expect it to re-establish a
balanced structure of production” (Hayek, 1936, p.177-178).
Other implications of the relationship between international organizations and States
correspond to the imposition of policies restricting public spending, the liberalization of markets,
the free movement of capital required to support the financial system, privatization of public
assets etc. However, these policies have a clear focus on the dominance of the States and
prioritized debt repayment over any other needs they might have had, as well as, an orientation
to the concentration of wealth due to the appropriation of rents and yields.
5.2. The Relationship between States
The relationship between States is a relationship between dominant States and dominated
States and not subject or resistance to power. In the case of countries not subject to Foucault,
this resistance is of a strategic and fighting nature that manifests itself in three different forms of
domination, exploitation and subjection. The first is against all forms of ethnic, social or religious
domination; the second is to combat forms of exploitation that separates individuals from what
they produce and the third is against the forms of subjection that link the subject with himself
and thus ensure their attachment to the other. The struggles which have as their objective the
effects of power are, at the same time, transversal and are not limited to one country or to an
economic system and are linked to knowledge (Castro, 2011).
Without resistance, there is no power. This makes it very important to start the
description of the relationship between States, the relationship between the dominant and the
dominated, since it is the latter that justifies many of the alliances that give strength to the
dominant state and the struggle between dominant states or blocks of dominant states. To
quote Umberto Eco (2012), “Inventing the enemy” this is what has happened throughout the
history of capitalism and now neo-liberalism. The Soviet bloc enemy justified many of the
conformations of the current economic system and the monetary system itself, when the USA
pressurized Germany in the 1960s of the convertibility, to withdraw troops from Germany. In the
1970s, it was the oil-exporting countries and after the dissolution of the USSR, who became
created as distinct enemies, and which in recent years have become, yet again, Russia and
China, among others. In this way, in recent months all the negative fluctuations of the stock
market seen have been blamed on emerging countries or China. Russia was blocked, one of
the leaders of the BRICS countries and a possible parallel currency system, with justified
conflicts which were created near its borders.
This situation of being constant enemies justifies invasions which are always
accompanied by wealth appropriation and, in turn, feeds the defense industry of great
importance in the dominant countries for their economies. But also they promote partnerships
for the benefit of “security”, as NATO has been, and it has also served to protect its interests in
different parts of the world. The United States has about 800 military bases around the world to
protect their interests but which in turn generate significant military spending (more funding),
which obviously benefits the arms industry, linked to financial power, either through direct
participation and through its funding.
The relationship of domination of some States over others has, historically, been
undeniable and quite defined in its European origins with respect to the rest of the world. In the
early 20th century, European descendents (USA) created world domination. However these
dominations have always required allies who become part of the dominant States but who have
a lower rank to the main dominator; they are strategic allies as domestic regimes supporters.
For those countries dominated in different areas of the planet, their ranking of dominated State
decreases depending on the subjection of political power, unless political subjugation, at least
domination, reaching statehood is not subject or in resistance.
One of the relationships between States is international treaties whose effects would
depend on whether these are between the same or with dominant countries. In the first, they
are normally cooperation agreements and regional integrations (ALCA, MERCOSUR in Latin
America and COMESA in Africa), either between dominated states or states not subjected
(BRICS) and the second. The dominant States have advantages in imposing their criteria for the

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benefit of big business and greatly harm weaker states. A good example of the effects of an
agreement at a disadvantage is the North American Free Trade Agreement (NAFTA) between
the USA, Mexico and Canada, which became effective since 1994, with the following results:
a) The real value of the minimum wage and the manufacturing sector had a percentage
change of -17.9% and -20.6% respectively during the period of 1993-2001.
b) Most of the employment generated corresponds to the maquiladora industry.
c) The percentage of Mexicans living in acute poverty fell from 21.46% in 1994 to
50.97% in 1998.
d) Environmental degradation has increased and there is a state of extreme financial
volatility.
e) The exodus of farmers to the cities and to corporate farms has accelerated in
northern Mexico and the United States - about 2.7 million Mexican farmers have abandoned
their land (Anderson, 2001).
Today there are treaties currently underway; Trade in Services Agreement (TISA),
Transatlantic Trade and Investment Partnership (TTIP) and Trans-Pacific Partnership (TTP), all
with high opacity for the inhabitants of the countries included in these treaties, as their texts
have not been disclosed openly and according to the little information beyond emitting means
with effect in domestic law behind citizens on important issues such as, intellectual property,
labor law, environmental law and arbitration between the differences between the investor and
the signatory state to the treaty, surpassing the laws of the state and sovereignty. The scope of
these agreements aims to overcome the interests of big business over the States and should be
the subject of an extensive and more detailed study, with the little information that has been
filtered in alternative media such as Wiki Leaks.
5.3. The Relationship between the State and the Economy of Large Companies
The relationship between the State and the economy of large companies is a two-way
relationship with a strong influence of local oligarchies in the powers of the State, given
historically, with the direct participation of these oligarchies in politics, in the institutions of the
judicial power, as well as in lobbies or pressure groups. Furthermore, just like in the large
companies the transnational companies are also involved; the pressure on the State is not only
local but also international. One of the main objectives of these pressures on the State is the
influence in generating a particular law or a pressure for not legislating on matters that benefit
big companies as a whole or in sectors of the economy in which they participate. Another
objective was to obtain certain contracts or grants from the State, where many of these
agreements ended in collusion between the State and the company awarded the contract,
which was accompanied by political corruption and/or financing of political parties. These
pressures manifested themselves through secret agreements, national pressure lobbies,
pressure from foreign states, pressure from international institutions, etc. In this way a transfer
of the State resources to big companies or rent appropriation of the population occurred but, at
the same time, the large companies, mainly in the financial sector, now national or international
were the buyers of bonds and grantors of loans to the State, thereby producing a reverse flow of
monetary resources, which also caused dependence on the State for these companies. With
this funding the state gained influence and pressure mechanisms, producing the captivity of the
State. This aspect is one that reversed the work of the State, which should have acted as a
principal, acting as an agent of large companies, seen from the point of view of agency theory,
but where in addition, the large companies continued asymmetries information on their behalf.
Thus the possibilities of control by the State were completely cancelled, from here the effects of
income taxes of large companies were much lower than those of small and medium companies

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and as well as having large structures of internal professionals and business networks for their
defenses and to divert profits, avoiding taxation and supervision.
This relationship between the State and large companies where the distortion of control
and monitoring were affected depended on the size of the company which, in some cases,
exceeded the benefits of the state GDP or formed an oligopolistic block, as the financial sector,
which imposed its conditions within States.
The State's relationship with big companies is very different to the dominant State,
where the State is all but defined as a group of companies that exert their dominance in various
sectors of the national and international economy with its products. Therefore, it is a relationship
with minimal resistance or struggle, where the actions of power remain almost annulled through
mechanisms of almost absolute power. However, these high levels of submission within the
dominant State, to the extent that increase social imbalances, may be almost as much or more
explosive in their rebellion than the dominant States. In the case of the dominated States, large
local and international companies linked to local elites imposed their conditions with much less
resistance, given the magnitudes of these companies compared with States and by linking local
elites with political power, where they had the pressure mechanisms or participated directly in
political power. What is more, all this was in addition to the dominant discourse control through
control of the media, owned by the same corporations and the educational, cultural and
ideological submission.
On taxation, the large companies acted as collectors of indirect taxes, as well as small
and medium sized companies, did not produce a special relationship in this respect, with the
exception of pressure changes in tax which in this fiscal matter direct taxation which could affect
big business and which were interested in changing. In this respect, it also imposed the
minimization of the State, which did not have resources to spend more on social benefits,
because taxes were not sufficient and therefore spending had to be reduced. This in turn,
forced workers to accept minimum working conditions because they had no State support in
matters of health, education, welfare etc, blaming, furthermore, those who made use of social
services of the problem that had been generated, facing different sectors of the population. This
diverted attention from the real problem of low wages or rent appropriation of workers and large
companies not paying taxes, which only acted as collectors of indirect taxes, paid for by the
consumer.
5.4. The Relationship in the Economy of Large Companies
The relationship in the economy of large companies in the current IMS is where it is born and
where crises are generated. Given the current levels of freedom in generating money-debt and
inflation control in the real economy, the growth in the money supply remained in the economy
of large companies (Kallianiotis, 2014), (El-Hodiri and Mukhamediyev, 2014). This is how the
increase of the money supply remained within the economy of big companies and flowed to the
financial sector to large mainly non-financial companies and a small portion went to the real
economy of families and small or medium sized companies. Given that most of these increases
went to large companies, the increases in money supply generated new productive assets or
increases in products that could not be absorbed by the real economy, generating alternatives
and/or joint bubbles in different sectors of the economy.
On the other hand, a low rate of sustained interest over time, which did not necessarily
correspond to the natural rate of interest of the economy, subjected the economy to a sustained
level of low interest rate, since an upward shift in the type of interest is what slowed down the
credit spiral in which sustained the system, given the high levels of debt held. In this way, the
excess money began to change the economic sector and shifted the problem from one place to
another, as what happened in 2000-2001 crisis with the dotcom or with the real estate crisis in
2007-2008 which increased the supply of goods disproportionately to the needs and possibilities
of the real economy, which eventually had to be absorbed by the economy of large companies
by individual evictions, bankruptcies, absorption of financial institutions with real estate assets,
amongst others. However, these excess production, money-debt or uncollectible loans had to
be supported by the State, an important transfer of private debt to public debt. This transfer of

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35
debt in turn affected the low interest rate because the high indebtedness of the States that had
to assume the private debt, made its payment unfeasible to a higher interest rate and creditors
(financial institutions), which they wanted to recover their loans or collection of interest, at least
for an extended period.
This loop that keeps the interest rate close to zero, increased the money supply again in
the economy of large companies and these resources moved sectors until the next bubble
popped. Bubbles which were nothing more than inflation in the economy of large companies,
inflation which resulted in a disproportionate increase in fixed assets and investments; that is to
say, in over valuations and over production, that fully complied with the quantity theory of
money from Fisher, where an increase in the money supply produces an over-evaluation, in this
case of assets, but with an additional component, due to these assets being of long duration in
the economy in the long run, further hindering recovery.
This without a doubt, the financial sector is very clear, is where the orientation of the
money supply continues to create and now exists, moving to intangible assets (equities and
derivatives) and not long-lived assets, saturated, except for investments in infrastructure, but
the latter would increase the debt of the highly indebted public sector and, therefore, the lowest
of the monetary flows focused on infrastructure, not on repairs or replacements.
Now, as the strong movement of money supply has been oriented to intangibles, which
not only involved large non-financial companies, but also financial companies, to balance this
market of intangibles is the possibility to assume gradual losses by overvaluation, gradually
adjusting the value or aggressively adjusting those which would cause huge losses and an
enormous mistrust in the system. The other possibility is to appropriate income from the real
economy and shift the loss to families, small and medium sized companies or a combination of
some of these strategies.
But as the goal of large companies and professional investors is to maximize their
profits, they will be unwilling to take losses on their investments; in this way, some will tend to
change sectors and invest in gold, precious stones or real estate in very specific areas, such as
large cities. This movement situation of intangible investment property assets is one of the
preferences of the financial sector as it helps them get rid of assets that they have but also
increase the valuation of those they have in stock.
Also the movement of overvalued investments into the real economy as the strategy
that makes the big companies move their losses is approached by capturing pension funds,
savings surpluses of companies etc. The market of variable rents sold their own investments in
intangible assets (equities and derivatives) -which in many cases had been repurchased to
increase its valuation- with an overvalued price and then adjusted prices, assuming directly or
moving to the real economy, the loss generated.
Moreover, this excess of money supply began to occur when the massive appropriation
of public assets, by large companies, was terminated and new appropriations began to be
slower and lower. For this reason, in order to channel this excess money supply, after the
strong privatization process, large companies generated conditions for further privatization
which is how it reached sectors such as health, pension systems, education, etc. But the
privatization of these sectors proved slower and found more resistance, which in one way or
another, led to the creation of bubbles. However, the system in its privatization climbing, the
strong pressure due to the levels of public debt, once the system channeled and adjusted their
investments in intangible assets and/or real estate assets, allowed a small rise in the system
types and represented the final pressure for the appropriation of these public resources,
regardless of the resistance that could be generated, as the political factors of the same State,
who must implement these privatization actions with local companies or through
denationalization.
One of the most important monetary flows that occur in the economy is through foreign
trade and capital movements. The first represents a flow of production surpluses, whether
scheduled or not, which are accompanied by movements of monetary flows between large,
medium sized or small companies, and even families or individuals, which directly affect the
commercial balance. The second, movements of capital, are investment flows and/or
speculation and affect the balance of payments. In the case of foreign trade, exchanges will

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36
give rise to a surplus or a deficit in the trade balance which will force them to compensate for
these financings, whether internal or external, through the financial system. The States
themselves also purchase goods and/or services abroad and add to these movements of cash
flows. But all these monetary flows of foreign trade are usually regulated by a State agency,
called central banks, which regulate these cash flows. The currency fluctuations that occur in
countries that do not operate with its currency must also be added, due to the exchange rate
flexibility, which affects the costs of companies of dominated countries that did not operate with
its own currency.
In periods of increased money supply, which have caused an overproduction of either
capital goods or merchandise, a way out of this surplus is precisely the international market;
however, when these goods cannot be marketed abroad, bubbles burst in the same country and
the affect abroad depends on the size of the economy. An example of this is in the crisis of
2007-2008 and the case of the housing bubble; for example in the United States. As well as the
domestic impact, a part of this bubble was exported through the sale of so-called derivatives
abroad. In the case of Spain, despite export through some derivatives, given the magnitude of
its affect on a world level these derivatives investments were not attractive and a large part of
excess assets produced had to be left to the local financial system, and long term, waiting for a
recovery.
In the relationship of large companies there is no direct link between these monetary
and international organizations, but there is great pressure from companies or organizations
through large lobbies installed in the headquarter cities of these organizations. A classic
example of this is the lobbying of companies permanently installed in Brussels, headquarters of
the European Union Parliament.
5.5. The Relationship between the Economy of Large Companies and the Real Economy
The relationship between the economy of large companies and the real economy is the
relationship of the largest monetary exchange produced in the economy, though not necessarily
greatest imports. The flows between these two economies can be distinguished between those
of a productive character (goods and/or services) with those purely financial. The first flows do
not generate money supply, even though debt-money can be generated through credit between
suppliers and customers; these are offset by payments on previous loans and/or real goods in
the economy. On the other hand, the second flows of a financial nature generate money supply,
although with some restrictions such as controlling inflation. (El-Hodiri and Mukhamediyev,
2014). This control is exercised directly by the same financial institutions through credit policies,
even though these are not respected in periods of booming economies, especially in the case of
mortgage credit (real estate), which as it has no impact on the inflation indicator, may grant
loans in order to recover credits granted to builders and, in turn, distributing lowering the
concentrated risk. In any case, this relationship is not concentrated and the money supply is
quite fragmented.
Another control mechanism of increased money supply is through the wages paid to
workers which are always kept in tendency to fix the price increases with a price difference
which either reduces its purchasing power and results in a decrease in consumption and is
forced to gradually adjust, both the States and the companies themselves.
In this relationship of a financial nature can be found the raising of funds for families and
small and medium sized companies; these are expressed in savings, short-term deposits,
surplus cash and salaries in current and savings accounts. These flows are what largely fuel the
financial system and therefore the monetary system. Through this relationship, flows are also
produced towards big business, with the payment of interest on loans, commissions and a
number of services that have been added by the financial institutions to their product portfolio.
But there are also all kinds of credits that financial institutions provide small, medium sized
companies and households, either through specific or freely available loans, as well as credit
cards. In this relationship between the economy of big companies and the real economy, one
of the most important mechanisms for monitoring and control occurs through different payment

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37
systems that are leaving records that can be crossed with other information relating to persons
and companies. The Panoptical Effect which, with the development of payment systems such
as plastic money, has deepened. Also, given the link between the State and large companies of
the financial system (information exchange), the individualizing discipline is perfected, based on
the hierarchical surveillance, linked to the distribution of spaces and power relations it generates
distribution and uses as an instrument Bentham's Panopticon, being able to come to take the
normalizing judgment, which draws a line between normal and abnormal, in order to
homogenize.
Finally, even among the same families, small and medium sized companies, a
momentary increase in the money supply, which is offset by payments made between them,
end up having no impact on the money supply in the long run.
5.6. The Efficiency of the Private Company and the Inefficiency of the System
The current IMS works inefficiently due to the influence of the monetary system of mainstream
economics, which has shaped the international system along the lines of its internal system and
satisfies the criteria of private companies, rather than economic efficiency. The first was to
discredit the gold standard, blaming all the problems on this monetary imbalance without
seeking the real culprit; considering that the gold standard system could be improved or
replaced by another, which undoubtedly requires international consensus.
In February 1932, Hayek referred to this subject and made it quite clear its influences
against the system stating that, “However, there can be little doubt that the new monetary
problems that have arisen derive from more persistent and continuous attempts from many
sources and for many years to prevent the operation of the gold standard than the inherent
trends” (Hayek, 1999, p.229).The repeated violations of the rules of the gold standard were
responsible for the imbalance, but these were not considered for the development of
subsequent proposals.
Both in the USA, as in England, the excess emissions or increases in supply, product of
the conflicts at the turn of the century and the crises of this time, product of these same excess
of the money supply, made these abandon the gold standard and issue money on their reserves
or without them. To this must be added the influence of Inving Fisher and Gustav Cassel,
representatives of the quantity theory of money and price stability and the price stabilization,
together with the resolutions of the Geneva Conference of 1922 added to the gold standard,
cooperation central bank and which spread price stabilization. These fluctuations in the value of
money prevailed, “the idea of making the concept of price stabilization an objective of economic
policy and a virtually unassailable dogma” (Hayek, 1999, p. 230). Since gold production was not
adequate to maintain, “an increase annually in monetary gold stocks in the world of 3 percent,
which was what was needed, according to estimates, to maintain price stability” (Hayek, 1999,
p.230). Keynes also pursued in Britain a policy of “stabilization”, preventing the growth of the
money supply according to the growth of gold stocks, taking the example of the USA but
forgetting that it had violated, again and again, the rules of the gold standard. It also did not
consider that the theory of price stabilization was developed for a closed economy and did not
apply to a country that was a member of the international system. This policy of stabilizing
prices was based on the idea of credit expansion, with fatal consequences, with persistent
inflation that lasted until 1929; inflation which was not enough to maintain the level of completely
stable prices. Without considering the opinion of the monetary classic, which “always insisted
that a circulation of non-metallic money should always be tightly controlled so that the total
volume of money in circulation varied in the same way as would happen if only gold was in
circulation” (Hayek, 1999, p.241). Then to generate the product of applied political crises, it was
believed that these could be overcome by fighting the symptoms, where the immediate cause of
the crisis lay in the wrong production structure and the rise and deflation process generated was
just a consequence (Hayek, 1999).
In 1929, Hayek, referring to the FED, expressed that it cannot be assumed that a
central bank be better prepared to avoid shocks to the economy, due to excesses in credit
volume, a system of independent commercial banks led by purely business principles (liquidity,

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38
profitability). Central banks that provided liquidity to the system are handcuffed when avoiding
unwarranted credit growth. Therefore, the reform of 1913-1914 with the creation of the FED,
created new possibilities for inflation, increased in turn by successive legal amendments of
credit expansion. He ends by recommending Europe to pay careful attention to events that
occurred in the USA for forthcoming international conferences, as otherwise they will be
completely disoriented and free rein would be given to the USA and England to impose their
views; which is just what happened later (Hayek, 1999).
The failure of an IMS which was inefficient, exclusionary and unbalanced is the success
of the world finance capital which had been established in all the countries of the Western orbit.
One way to counteract the effects of this model was to incorporate new and more active
elements, as noted in a recent study involving a total of 764 between private and public banks in
54 countries for the period 1994-2009. It revealed that public banks played a better role to
counteract the crisis, since in these periods it increased credit to the inverse of private banks in
normal times and reduced credit, while private banks increased them. In this way, the authors
suggest that governments can play a countercyclical active role in their banking systems
through state-owned banks (Brei and Schclarek, 2013). But we must keep in mind that this type
of action does not solve the problem, it only slightly dims it in periods of crisis, focused on the
symptoms, not the root of the problem unless the participation that these state-owned banks
have an important market share, around 50%, and generated a significant balance in the
measures taken, both in boom periods, as well as in periods of crisis.
6. Conclusions
The monetary system has been shaped historically and it has come to rely almost exclusively
on the private financial sector in everything related to money supply, the dependence of States
for their financial needs, the conformation of international agencies that have been created to be
directly or indirectly dependent on the sector, the establishment of global economic policies etc.
In this way, the established monetary system responds to certain interests of maximizing the
benefits of the private sector and not to monetary efficiency of the economy.
The takeover by the private company of the monetary system converted it into the
fundamental tool of monetary shaping corporate governmentality, concentration of wealth, rent
appropriation and yields. In the same way, the dominant monetary theory established is the
product of this historical formation and the current functioning of the monetary system based on
these theories is the answer to the interests of the private financial system.
This financial private sector, linked to the non-financial private sector either for reasons
of major funding or participation, corresponds to the economy of large companies where the
concentration of wealth can be found. On the other hand, in the real economy of families, small
and medium sized companies it is the consumers, suppliers and distributors, with no or minimal
bargaining power, which are against these huge monopolies or oligopolies that are in the
economy of big business. In this relationship between the economy of big business and the real
economy, the process of rent appropriation and its yields steadily occurs.
The other major process of rent appropriation occurs in the relationship between the
state and the economy of big companies where, besides the captivity of the State by big
companies, plays a key role. This appropriation process called privatization and which has had
a climbing growth, gave birth in the 1980s where the monetary system acted as an essential
tool for achieving these appropriations, stopped in the late 20th century due to the appropriation
of the best productive public companies and service was over and the still state-owned
companies increased resistance to the privatization process on behalf of the population.
But once the States with the proceeds from the sales of companies covered their
deficits and/or invested these resources in infrastructure and no longer had revenues of
companies that had been privatized, they begin a new stage of indebtedness. Moreover, as the
privatization process generated at different speeds in different latitudes, it generated an excess
money supply which caused: new loans to States which could hardly be returned due to the
drop in revenue, overproduction of capital goods on ratings, excess production of consumer
goods which could not find a market due to controlling inflation in the real economy etc. and

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39
which eventually caused bubbles in some sectors of the economy and therefore the crisis over
the last 25 years.
This is how the crises generated economic cycles, the result of excess money supply
which in turn caused the very creation of the monetary system and all those involved.
Furthermore, the same great companies which depended on the monetary system have had the
ability to “learn” in this historic process of conformation to take advantage of these crises in their
own right, maximize their profits and concentrate wealth. The inefficiencies of the monetary
system, its crises and the concentration of wealth are the result of the “efficiency” of big
companies in general and of large financial companies in particular, both at a country and global
level but where this “efficiency” of large companies is only possible with the complicity of the
State, which acts as a facilitator of this process of wealth concentration and rent appropriation.
One aspect not addressed in this paper is based on virtual currencies and block
systems although they do not have a large share in the current money supply and if an
alternative and/or alternative monetary system is not generated, this mechanism could possibly
have a great importance due to the search solutions on the real economy. Another aspect not
addressed are the effects of possible negative interests which can be applied in the future, both
to reduce the money supply and to reduce the unpayable debt of many countries and also as a
tool for appropriating the savings of the real economy. These issues, therefore, are
recommended for future research.
Also in the component of future research with specific application to certain countries,
the development of studies describing the existence of the influence it may have on domestic
monetary systems and the international monetary system the processes of destabilization of
governments dominated economies to resist the process of domination is recommended, since
these processes are typically accompanied by high inflation.
Finally, this paper on the description of the current monetary system is also a diagnosis
of a sick economy that has as its central pillar its irrational and inefficient development, a
monetary system concentrated in private companies. The behavior that is at the level of
individual States and global level; where in each State a small oligopoly of the financial system
imposes its conditions and interests in that State and operates a small world increasingly
concentrated oligopoly and operates in the dominant economic and which influences, affects,
determines and dominates the whole of the global economy. This diagnosis and description of
the monetary system is now also expected to serve as a basis for further research in this field.
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