Pareto's 1920 - 21 Manuscript on Money and the Real Economy

In the 1896-97 Cours d’Économie Politique and the 1906 Manuale di Economia Politica, Vilfredo Pareto made no use of the ‘Fisherian’ type quantity theory equations of exchange that Walras developed in the 1874 edition of the Éléments d’Économie Politique Pure and completely ignored Walras’ more mature ‘Cambridge’ type encaisse desirée (demand for real cash balances) approach that Walras integrated within general equilibrium in the 1900 edition of his Éléments. This paper critically examines a fragmented manuscript that Pareto wrote in 1920-21, and which was first published in 2005, for the purpose of clarifying the reasons why he did not follow Walras in integrating monetary theory within general equilibrium. In many respects, the manuscript follows Walras more closely than Pareto’s major published works, but the substantive point is that Pareto was unable to introduce money within general equilibrium theory along the lines envisaged by Walras because he explicitly recognized the interdependence between money and the real economy and abandoned the quantity theory of money.