Money and the auctioneer: Assessing Walras’s Decentralised Exchange Process∗

Si nous voulons parvenir à la connaissance des lois qui régissent l’échange des biens, il est nécessaire que nous remontions d’abord aux motifs qui font agir les hommes dans l’échange des biens, aux faits indépendant de la volonté de l’échangeur, qui sont avec l’échange des biens dans un rapport causal. (Carl Menger’s letter to Léon Walras, February 18841) Recent works on Walras have underlined a part of this author’s theory that had passed unnoticed, i.e. the role he gave to money as a device allowing the decentralised allocation of goods. This contradicts, at least partially, the shared idea among today’s monetary theorists who point out the difficulty to introduce money in the perfect competition framework à la Arrow-Debreu. In this paper, after having reviewed the logical construction of Walras ’ price theory, we use modern monetary theory to examine Walras ’ justification of the use of money as a medium of exchange. This allows us to isolate the conditions under which this introduction can lead effectively to the circulation of the medium of exchange and to discuss the consistency of the assumptions made to introduce money with those of the competitive aspects of his theory