Notes

   ¹   José Villacís: ‘The Parallelism between Prados and Bernácer in Macroeconomics’; Pensamiento Iberoamericano: Revista de Economía Política, no. 6.

   ²   Society…, published by Francisco Beltrán -Madrid- and dedicated to Oscar Esplá.

   ³   The Theory of Disposable Funds, basic article published in the Revista Nacional de Economía (Madrid, Barcelona) in 1922. This article was reprinted with modifications in: ‘The Fundamental Expression of the Value of Money’, published in the magazine Anales de Economía (Madrid) in 1942. It was also reprinted in chapter 1, section 11 of the book The Functional Doctrine of Money, page 25 (2^nd edition from 1956, which will always be the edition referred to herein). The book was published in 1945. The French version of said article was sent to Robertson, who acknowledged receiving it. It initially appeared in Society…, chapter VI, page 142-154.

   ⁴   Oddly, Bernácer, despite providing a masterly description of the money market and interest, did not provide an initial description of the concepts that explain the movement of money to money-income, or simply income. This explanation, along with other simpler ones like investment, fixed capital, working capital… are found in A Free Market Economy without Crisis or Unemployment, from 1955, publisher Aguilar, Madrid. In my opinion, the money-income relationship is explained when he stated that new money must finance working capital (Chapter IV ‘The Price of the Unit of Value’, paragraph 1, section two).

   ⁵   I will employ the convention of representing production income as Y. Further on, respecting Bernácer’s terminology, I will call it R. There will be two Rs: one is production income or Y, and the other will be financial, or the earnings from financial assets. The income in question will always be clarified.

   ⁶   Here the term income refers to production income or payments to the production process, unlike income from financial assets that for Bernácer are financial yields opposing production. In the terminology used herein, the term R is used indistinctly for these two types of income, although the meaning will be explained in each case.

   ⁷   The instruments of fixed production, a machine for example, when they are demanded or bought or, the same thing, removed from the market by the businessman who needs it, change from being working capital to fixed capital.

   ⁸   Traditional macroeconomic nomenclature is used here. For Bernácer R = Y in this example.

   ⁹   It is interesting that in Bernácer’s work from 1916 (33 years old) and from 1955 (72 years old), there is perfect parallelism in his explanation of these ideas, which resisted the evolution of neo-classicist thought and the Keynesian revolution. Explanations such as the fact that fixed capital created by the manufacturer is working capital and that its production comes from new money –technical regulatory proposition- appeared in Society… (chapter VII, ‘Dynamic of Wealth’, page 167). This was the quote: ‘Total prices assigned to two successive productions, added to the amount of working assets in each period plus the minted money or minus that which was de-monetised in the intermediate period, give equal totals…’. This is repeated with greater precision and arithmetic formulas in The Functional Doctrine…, book 1, chapters V, VI, VII, VIII, pages 75-127 (2^nd edition).

  ¹⁰  D = S (total saving) - S_k (invested saving)

  ¹¹  Bernácer made a meticulous and long distinction between abstract capital (that doesn’t exist), fixed capital and working capital in chapter II of book I of Society…” (page 34-5-6). Later he insisted on the distinction between first-class and second-class working capital, as well as the money that finances it. See The Functional Doctrine… chapter V, book one, pages 75-89 especially page 83-84. He repeated these ideas with numerical examples in A Free Market Economy…, chapter IV, page 63-66. The precedent for the financing of working capital can be found (besides in Society…”) in The Interest of Capital (book II, chapter IV, page 129); a book dedicated to his mother and published by Lucentum in 1925. Alicante.

  ¹²  The terminology used by Bernácer is not confusing, although in Society… he used archaic terms in economic literature, accompanied by other modern ones, where the last ones had resisted the passage of time. Thus, he used Disposable Asset as a predecessor to disposable fund. etc.

  ¹³  The financing of capital and the need for financing with savings for fixed capital and new money for working capital is not only a need for the fulfilment of Bernacerian economic policy, but a requirement for macroeconomic equilibrium.

  ¹⁴  If the system works –even when it frequently works poorly- it is because financial institutions not only transfer savings to investment, but simultaneously create money while performing this transfer (monetary multiplication from The Functional Doctrine…, book 1, chapter VII, page 106); and also in The Interest…, page 135, which textually reads ‘… state intervention in banking issuances prevented banking commerce and progress from continuing with the reduction of interest for working capital of commerce and industry until annulling it. But commerce and banks are tireless in this eagerness for liberation…’ Moreover, the Central Bank helps, although not always, by creating money, which the system then multiplies and also destroys.

  ¹⁵  Bernácer emphasised the difference between capitalisation and investment. Although one involves the other; the first entails only a real concept and the second monetary, something that may confuse readers, as I was confused. Furthermore, the agents that represent it and exercise it are different. The first is a function of producers and the second of savers-financiers (A Free Market Economy…, chapter II, section II, page 38).

  ¹⁶  These are financial market incomes, or yields, that I call R. They are different from production income. I use R to refer to both of them, even though they are different, always explaining which one is being referred to.

  ¹⁷  Bernácer always called his theory income-based, not only to differentiate it from quantitative theory, but in order to understand economics from the viewpoint of income that comes from production (preliminary of Say’s Law), which in turn will be used to explain how savings is born from previous production.

  ¹⁸  Bernácer’s first economic formulation can be found in the end notes of his book The Interest of Capital, note IX on mathematical equivalency between savings and disposable products, page 243. It contains the product and static income ratio, which will give rise to dynamic equilibrium. This formula is later expanded upon to incorporate it with the creation of money, national money, international money, commodity money, fiat money, working capital… This extended formula is developed in part 1 of The Functional Doctrine…

        Lastly, this theory is summarised using the same method, but more synthesized, in 1955 in A Free Market Economy…, Appendix 1 A) The Value of Currency, and is an analytical exposition of the doctrine from chapters IV and V of the same book. In this regard, the following sentence is worth repeating here: ‘In a situation of equilibrium, the increase in working capital of companies is equal to loans for working capital and also equal to the amount of money created’.

  ¹⁹  For Bernácer, savings comes from previous production. This interpretation of macroeconomic thought is essential to his body of thought. Savings is thus the fruit of production in generated capital goods, paid via income, which has not been spent R – C = S, because P production = R income and production of C consumption and of capital K or I, then S =I.

  ²⁰  Due to dealing with production income that is different from other income, financial or speculative. Remember that both of these different types of income are called R. Thus P is production and D disposable funds, where D = S - Sk, and S is total savings and S_k the part of savings that is not capitalised.

  ²¹  d (small letter) is demand and D (capital letter) are disposable funds, or unspent income or the absence of demand

  ²²  There was another on the food sector entitled The Food Industries (1906)

  ²³  Germán Bernácer, Society and Happiness, page 87. As readers can see, this function is an isolated piece within Bernacerian macroeconomics and is not set forth around the model of income determination.

  ²⁴  Schumpeter says something similar: Money is a claim against social production. Bernácer’s sentence is more appropriate because unfortunately, money is a credit against something more than social product, which is actual financial secondary assets, a sort of anti-wealth.

  ²⁵  The issue is first seen in the first part of Society and Happiness, book I, Economic Foundations, chapter IV; page 46, as well as in book II of The Distribution of Wealth. The article that explains the mechanism of generation, distribution and transformation of income is the famous Theory on Disposable Funds (1922), in which the money market is explained. However, the book the completely explains not only the money market, but also the nature of money is The Functional Doctrine…

  ²⁶  The often-repeated sentence of Bernácer that whoever demands money is supplying goods and whoever is supplying money is demanding goods, is outlined on page 35 of Society and Happiness, repeated innumerable times in The Functional Doctrine… and in A Free Market Economy…, defined well in the first chapters. In the article ‘Metric Economics’, (1955-6), published in the magazine Arquímedes, he stated: ‘…The supply and demand for money, without saving in exchange for what, does not make sense, because the act of exchanging money requires some qualification that removes its appearance as an absurd operation…’. Although Bernácer handled the issue of interest from the beginning, it was in 1925 when he explained how money-income-savings are supplied and demanded in exchange for financial assets respectively, thus being how consumer and capital goods join with financial assets to supply and demand money.

  ²⁷  Henry Savall made an interesting historical classification on the generations of economists who have handled money: Germán Bernácer: Heterodoxy in Economics, part 2, I, ‘The General Theory of Money’, page 163, published by the Institute of Alicante Studies, Provincial Council of Alicante, 1983. The first edition was in French and entitled Germán Bernácer: L’hétérodoxie en Science économique published in 1975 by Jurisprudence Générale Dalloz.

  ²⁸  The first record of his concept on disposable funds is on page 157 of Society…, where, due to his business background, he called totally circulating money disposable assets. He was referring here to the forms of saving. If it is already employed in real capital and fictitious capital (deal wealth or financial assets) the rest that is completely liquid and he would later call these maximum or third-degree disposable funds. In 1916, he stated: From where it turns out that, separately from assets represented fictitiously (my italics) by credits or lands, and really consisting of capitals or wealth in use, there is certain asset that is available to be employed and is, as a general rule, made up of money. It is suitable to use the nomenclature of working assets or disposable assets, because it can only attend to new production needs and extraordinary consumption…’ (page 157 of Society…

  ²⁹  The Theory of Disposable Funds

  ³⁰  As one can see, Bernácer analyses the two angles of savings: as investment and as speculative activity on the financial market. See Society…, book II, chapters III, IV &V. However, in the article from 1922, The Theory on Disposable Funds, he barely explained them.

  ³¹  The Theory of Disposable Funds…, etc.; The Functional Doctrine…, book one; ‘The Fundamental Expression of the Value of Money’, article in Anales de Economía 1942. In all these works, the following discoveries are basically found: l. A classification of disposable funds; 2. Movement from one degree to another, through the mechanism of the creation and distribution of income; 3. A comprehensive typology of economic operations that are defined by transit from one disposable fund to another.

  ³²  Economic operations or the metabolism of disposable funds (income creation and distribution) are found in The Functional Doctrine, pp. 33-45 (1956 edition). It was first expressed almost entirely in Society…, p. 14 (dilapidation, loan…).

  ³³  In the graph that explains the theory of disposable funds, the financial market is not represented. Nonetheless, the explanation analysed the part of authentic disposable funds that, despite specific operations (passive), do not alter their state. The graph is on page 34 of The Functional Doctrine… (1956) and on 272 of the article from Anales de Economía. I have faithfully reflected it, only that I have added a flow of savings at the bottom that is not consumed or capitalised, which is a disposable fund that goes to the financial market for speculation.

  ³⁴  José Villacís, The Theory of Interest and Money in Germán Bernácer, magazine of the Institute of Fiscal Studies, Ministry of Economy and Treasury, Year 1983, no. 1981.

  ³⁵  In Society… (chapter III, part 11), he started the explanation of financial operations, analysing income from the land and the general concept of income (non-production). Readers should know that, in the beginning, Bernácer did not clarify the excess value existing in properties or sterile assets over the value resulting from updating their incomes. ‘The Financial System and Crisis’ is of enormous interest here, Revista de Economía Española (Madrid) 1935.

  ³⁶  The reader must be reminded that there are two types of income: authentic income or R, which is production income and equals Y in textbooks (Y = R). The other R, which also appears as an R and is called land income.

  ³⁷  Interest, as the central axis of Bernácer’s theory, has two grounds: first is the income considered in the previous section and secondly the market price of securities, which he called disposable assets; see Society… Later, he doctrinally qualified them (in ‘The Theory of Disposable Funds’) ‘as maximum disposable funds’. This is where the market prices of securities come from (V). Thus, the marginal profitability of disposable funds is calculated, called interest. This is the last mathematical explanation of interest (already set forth between 1916 and 1922) and it is also clearly explained in the book The Interest of Capital: the Problem of its Origins, 1925; on p. 115, part 11, chapter 11 ‘Turgot’s Refutation and my Response’.

  ³⁸  Bernácer had his predecessor not in the classicists or even in Böhm-Bawerk, whom he criticised, but in Turgot. When he stated that the value of securities or lands were not determined by the updating of earnings at an interest rate, but rather that this price is market information that lets interest be calculated, which is an unknown, what he did was revive part of Turgot’s body of work, formally relating it to David Ricardo’s analysis. In any case, on page 115 of The Interest of Capital, Bernácer’s writing successful, given that he called the capitalisation rate, which is the inverse of interest rates, 1/i.

  ³⁹  José Villacís, The Macroeconomic Theory of Germán Bernácer, Revista Católica Portuguesa, Vol. IX, Octobrr 1985, no. 3.

  ⁴⁰  Böhm-Bawerk, Capital and Interest (Kapital und Kapitalzins), 1884-1889 Innsbruck, which is the main book by this Austrian author, criticised by Bernácer for his idea of interest. His study is divided into two parts: the first is the ‘History and Criticism of the Theories on the Interest of Capital’ published in 1889 (Geschichte und Kritik der Kapitalzins-Theorien). He made a brilliant critical analysis and a meticulous inventory of the theories existing on interest. In the second part, ‘Positive Theory of Capital’, 1889 (Positive Theorie des Kapitals), he set forth a concept of interest that expressed his thought, which can be divided into two complementary directions. One is the psychological theory and the other, the greater productivity of longer production processes.

  ⁴¹  Bernácer’s central book is The Interest of Capital, in which he criticised classical theories (and earlier ones) and neoclassical theories. He focused on rejecting criticism of Böhm-Bawerk. The book is illuminated by monetary concepts, with interest understood as a price, where price is a datum about scarcity. Then, his constant question was the following: Does any theory explain the fleeing of system savings, which determines scarcity (is hoarding eliminated)? Book one is devoted to analysing previous doctrines and the rest to refuting the Austrian, whose theory was prosperous, but damaged by Swedish opposition. Cassel’s economic concepts also appeared, etc.

  ⁴²  In the book’s notes, there is an odd mathematical criticism of the discount of future utilities. A sum A with interest of 8% doubles, he said, after 9 years. Using income at the end and not capital, satisfaction of 1/2 of the present will be given. Thus, a convergent succession can be established as follows:

a(½ + ¼ + 1/8 + 1/16 + ······· + ½ n)

        He mathematically showed that the terms in parentheses form a converging series whose value does not reach the unit when it is not equal to infinity, or never. Consequently, a sum that is saved and placed forever, no matter how favourable the interest, will never yield its holder the equivalence of the sacrifice made and, furthermore, assuming that the intensity of needs related to the means to satisfy them do not decrease.

  ⁴³  The criticism of the Austrian was basically centred on the fact that no income determination model existed at that time (or at least not of the circulatory mechanism) that let saving and its scarcity be explained (see the book The Scarcity of Capital, page 59). This criticism is expanded to the same psychological arena (book III, chapter I ‘The Pain of Saving’ and chapter II ‘The Postponement of Satisfactions’, page 155).

  ⁴⁴  The Interest… (book 11, chapter 11), ‘Turgot’s Rebuttal and My Reply’, takes advantage of an opposition of Turgot by Böhm-Bawerk. ‘The explanation of the interest of capital given by Turgot is insufficient, because it establishes a vicious cycle…’ (page 104). Bernácer’s defence of Turgot is lucid. I believe there is not only kinship, recognised by Bernácer in the theory on interest, but also in monetary theory. It is a fact acknowledged by economists that Turgot came before the great macroeconomic creations with regard to monetary issues. Bernácer, who had already written a theory on income and the money market, could have easily rescued Turgot and destroyed the Austrian.

  ⁴⁵  Turgot not only justified interest, but explained: ‘One can rent money as legitimately as one can sell it; and the owner of the money can go one thing or the other, not only because money is equivalent to income and a means to procure income, not only because the owner loses income he would have procured during the time of the loan; not only because he risks his capital; not only because the borrower can employ it in advantageous acquisitions or in companies where he will get great benefits; the owner of the money can legitimately obtain interest for a more general and decisive principle. Although none of this happens, he has no lesser right to demand interest on the loan for the mere reason that the money is his…’ (Turgot, 74, Reflections on Wealth, used in Bernácer in the epilogue of The Interest on Capital, chapter VI, page 237).

  ⁴⁶  Obviously to Bernácer, given that his so-called income assets or financial assets are acquired with money and yield income, the owner of this money and, with much more meaning, the lender, is worthy of this interest. This argument can be seen in the article ‘The Genesis and Incidents of Savings’, Economía Española Revista, September 1934, no. 21. Also in the book A Free Market Economy… chapter IX, section 10, page 176. Don’t forget that Bernácer called actual financial assets, income-based or income assets and that Robertson corrected him, sensibly to be sure, by calling them income-yielding assets.

  ⁴⁷  Bernácer’s gratitude could not be more justified, as he stated that there are activities that on the one hand produce yields (a concept he later expanded upon) and, on the other hand, he implied about the part of income that makes income-yielding activities possible, which he later identified as maximum disposable funds. Turgot’s insinuation is found in his distinction between current money and money in reserves (The Interest…, Epilogue X, page 243 ‘Savings and the Physiocratic School’). In this way, Bernácer’s theory is perfectly tied together: income is born in production; part of it is consumed and part is saved. Part of this savings is capitalised and the other part is not. The part that is not capitalised acquires assets that yield income (Turgot’s reserve money) giving rise to interest.

  ⁴⁸  Despite everything, Turgot (according to Bernácer) did not acknowledge or did not insist that savings could end up not returning to the market due to its occupation in financial operations. This occupation time would be negligible to Turgot (The Interest…, epilogue X, page 242, ‘Savings and the Physiocratic School’). As important as time is the final or net volume of savings, which is related to the savings that come out of the financial market, which I call net disposable funds, to give greater precision to Bernácer’s thought.

  ⁴⁹  He combined the origin of the flows of disposable funds (The Theory of Disposable Funds) and their scarcity, which generates interest or a price that is explained in The Origin of Interest, critical book 1, chapter VII, with Turgot’s explanatory statement on the economic justification of interest, which he called reserve money. Of enormous interest are pages 84-85 of The Interest…, when he stated: ‘That the supply of savings created in order to employ them in industry or in loans, is a growing function of the interest offered… The accrual (of savings) is not enough and it would be even less so if interest were not offered’. Here Bernácer referred to what he considered ‘…the only rational thing that remains from the theories we have examined and that are essentially all the proposals until now…’

  ⁵⁰  a_ni = updating or discount factor of a chain of earnings at an interest rate i in the period n. B are profits from a production operation, contrary to speculative ones.

  ⁵¹  This expression should not lead you to the false conclusion that r is found by dividing K by B. It is the opposite, if the chain of returns was infinite (infinite amortisation), r would then be calculated by B/K.

  ⁵²  Bernácer admitted that all these theories contain some truth. The common denominator of all of them is the scarcity of money that allows for the existence of interest (Turgot, Marshall, Bohm-Bawerk, etc.). The sense of uncertainty and the compensation of risk owing to investment are two of them. Savings, which could be comfortably devoted to earning profits (non-production profits) without risk and without speculation, is invested and it is obvious that not all of it is invested because not everybody subjects themselves to uncertainty. Therefore, savings becomes scarce for this reason. It becomes even scarcer for investments with greater risk since savings (or, if you like, the misnamed capitals) find a greater prize here (those that triumph and don’t perish naturally).

        In their most scientific and detailed form, these ideas come from Frank Knight, with precedents in J.B. Clark and Hawley, and are explained by Bernácer, who did not quote Knight, who he did not read before 1925 (publication of The Interest…, Knight’s work published in 1921). It does not matter, given that Bernácer 1) Did not publish a doctrine on risk theory; 2) Only dealt with explaining the scarcity of savings, and 3) The Bernacerian scarcity of savings has another origin, which is the existence of the financial market. Moreover, Bernácer did speak of this in the two pages of the final epilogue of his book The Interest… (chapter V, ‘Supplies and Prices’, page 235-237).

  ⁵³  I do not know of an influence of the Swedish School (Wicksell, Ohlin, Lindahl, Myrdal) in Bernácer’s thought, owing to the obvious language problems of Bernácer living in a province at the turn of the century. Wicksell’s work Interest and Prices (‘Gelzins und Güterpreise’) was published in 1898 and later translated to English (I believe Lectures in Political Economy was the synthesis of previous works). Wicksell established the relationship necessary for equilibrium between the two types of interest: one monetary and the other real. In 1916, Bernácer explained the birth of income and the paucity of savings; and its price that is monetary interest, whose formation is missing in the Swede’s work, or at least as explained by Bernácer. Bernácer’s explanation is stricter than Wicksell with respect to real interest, which according to Swedish prices was very diffuse (Davison, Lindahl…). Keynes was apparently even stricter than Bernácer as he relates in his explanation of real interest (marginal efficiency of investment) the flow of income (profits) to the cost of investment (added capital). But if we remember that production resources take part in the formation of capital goods, where fixed capital is working capital when it is in the hands of entrepreneurs that produce it, then I believe Bernácer’s approach to be the most correct.

        In any case, the explanation of the accrued movements of income (absence of its stability) owning to the difference between real and monetary interest, is original to Wicksell. It is clear that there is no relationship between the Swedes and Bernácer, although there is between Wicksell and Keynes.

  ⁵⁴  In The Nature and Necessary of Interest, Cassel criticised Bohm-Bawerk and believes the existence of interest necessary for accruing the savings that will finance investments in a progressive society. Moreover, interest is needed to calculate the profitability of investments. Bernácer, who seemed to be familiar with the Swede’s work, criticised it because it did not explain the nature or origin of interest or, consequently, the cost of opportunity of investments.

        To Bernácer, Cassel was wrong, especially when stating that disposable capital leads to interest (because capital is money here) and because it involves waiting. To the Spaniard, disposable funds must be explained, which entails the conceptual creation of the financial market. Neutral financial operations make money-income (non-capitalised savings) remain constantly available and not capitalised (The Interest of Capital).

  ⁵⁵  The term ‘disposable funds’ was used by theoretical and practical economists (Marshall, Cassel; the latter citing Turgot when he said: ‘The price for the use of a certain quantity of value for a certain time…’). Seligman (Bernácer’s quote) distinguished between the demand and price of money in a general sense and in the Wall Street sense, whose mutual relationship does not seem clear (The Interest…, page 79).

        Keynes spoke of liquidity preference and Cassel spoke of waiting, which are both psychological concepts that do not satisfactorily explain the origin of interest. It is clear that disposable funds and liquidity are similar, but their natures are different.

  ⁵⁶  In ‘Metric Economics’ (Arquímedes page 55, section ‘The Swedish Solution’, 1955-6) Bernácer knew about the Swedish and Keynesian theories, obvious in the translations already done at that time (Bernácer translated English and Italian and, above all, French). He censured the term ex-ante and ex-post from a methodological viewpoint; derived above all from Myrdal and used to criticise Keynes, who did not know how to differentiate them. Bernácer was interested in facts, which are economic realities. The comparison of ex-ante and ex-post were not useful at all for comparing dreams to reality.

  ⁵⁷  Interest for Keynes was born in liquidity preference or the preference for interest according to Bernácer (Metric Economics). If Keynes, as a speculator, knew of the financial market and, furthermore, is the author of speculative demand, the most logical thing would be to explain things from the beginning as follows: ‘If the speculative market exists, money becomes scarce because it is there, which explains its lack and price, called interest’ (my comment).

  ⁵⁸  José Villacís ‘The Error of the Macroeconomic Equation and Quantitative Theory’, Boletín ICE magazine, March 1987, no. 2059. This article outlined the monetary vacuum of Bernácer that explained the financial market as the supply and demand of disposable funds and their result; the market price of securities and interest and the rest was not developed: the supply and demand of savings that goes to production (S - D = S_k). It is clear that here is where interest is determined (another interest) which is ordinary and monetary.

  ⁵⁹  Not all industries or companies (Bernácer sometimes used the two terms equally and improperly) have the same profitability. If there is no technological innovation, the usages of factors make the percent profit shrink. This was Turgot’s idea, who created and employed it more precisely: Reflexions sur la formation et Distribution des Richesses.

        Bernácer took Turgot’s ideas directly, as well as David Ricardo’s; stating ‘English economist David Ricardo set forth the following law for the first time: Rent from the land is determined by the excess of its product, on which the same application of work and capital can obtain a less-productive use from land. He later added: ‘it is not the less-productive land that limits that demands of owners, but the more productive land free from expropriation’ (Society and Happiness, page 114-5).

        There is the belief that Turgot explained interest from a basically real viewpoint, in terms of asset productivity, coming before Böhm-Bawerk. These beliefs rest on the criticisms Turgot made of monetary theories by Law, Locke and Montesquieu. Interpreting Bernácer’s thought, these ideas are false, since Turgot clearly knew how to see the difference between the two types of interest, real and monetary.

        One real interest rate and a class of decreasing marginal returns was the result of Ricardo’s study on land, which is applied to other factors of production in a generalised way.

  ⁶⁰  The term perpetual income does not refer to the mathematical-financial term, but to continuity in periodicity and time.

  ⁶¹  The oldest financial asset is land. This point merits a detailed explanation since both Robertson and I have been confused about it. Owing to this confusion, Robertson labelled Bernácer’s theory as neo-physiocrat, without irony (see Robertson, Essays on Monetary Theory, 1940, London). The confusion is the following: Land, when occupied, generates real income that progressively decreases. How can it be called non-productive income and said that its relation to savings (disposable assets or liquid capital) is financial interest? This would be said of land (a mine, a flat in Manhattan, urban building sites, etc.) that has a higher value than what it actually yields. Bernácer’s knowledge of Ricardo’s theory is impressive and I think he may have even improved it, by making the already-dynamic theory even more dynamic. According to Ricardo and Bernácer, prices are not high because land rental is high, but exactly the opposite. Let’s see why. Not all factors of production have the same supply elasticity and something must happen to mobilise them. Income from land is inelastic and it is speculation of vacant lands, without productivity and potentially productive, that make their prices go up, letting this speculation attract producers like a magnet to produce on these wastelands.

  ⁶²  In Society…, he distinguished between incomes that he called natural (a Ricardian term) and another that is effective, with speculation resulting from the latter (pp. 114-115). Then, one must also distinguish between land appropriation and land operations; when appropriation and exploitation coincide in a dynamic of successive operations, Ricardo’s income arises, which Bernácer called natural. However, lands are frequently expropriated awaiting their exploitation owing to humanity’s growing needs. Then there is a monopoly position that makes the effective income (what actually appears) higher than the natural, with the speculative appearing. Natural income, which is susceptible to being measured in real terms, is less than effective monetary income.

  ⁶³  I stress land rental because conclusions can be extracted from its analysis that can be applied to other real assets like root assets in modern economies. In A Free Market Economy… (page 106), he stated that if all lands were free, abundant and fertile, land income would drop and would tend toward zero… provided that there was still vacant land. This does not happen and there is always more demand for land, in order to exploit it, with supply smaller than demand. In this way, more property is appropriated, which are marginal with lower income that provides higher income to old lands. This income is objective and sure and institutions assure they are transmissible. This statement can be amplified to include other real assets. On page 107 of the same book, he said: ‘Due to land income, the rent on a premise in the centre of a large city is higher than the same premises in a suburb. Since construction costs are the same, the higher rental price flows back to the property owner…’ He later added: ‘Given that this income absorbs surplus product of marginal lands, producers do not benefit more than with what is earned on marginal lands and do not benefit more than the price of the marginal buyer’. This means that socially productive producers in terms of a flow of wealth profit only from one part and the owner profits free and speculatively from the rest.

        Lastly he stated: ‘Territorial income, like the majority of transmissible incomes, holds a special place in the set of distributive incomes. Its effect is to tend to match the liquid profitability of labour and capital in all places, with any more favourable opportunity absorbing the excess, via the property right deed of usufruct…’

  ⁶⁴  I have calculated interest as an income percent, by dividing income R (non-productive) by the security price. The difference between this calculation applied strictly to financial assets must be pointed out (bonds, obligations, etc.), whose income is supposedly infinite and is equal for all securities in a series (an income or dividend X is equal for all the thousands of securities in the same series for a specific obligation), and the calculation applied to the income from real assets on our financial market. In the latter, each real asset (flat, plot, country property, mine, forest) has its own rent. According to Ricardo, it depends on the order of appropriation and exploitation. Since each has its own income, it is clear that the same amount of disposable savings will obtain several interest levels, due to calculating quotient of different incomes over a constant portion of savings (non-capitalised).

        Example of financial assets: Obligations of perpetual income for 10,000 securities whose income is 1000 per obligation, where the value of each security is 10,000. No matter the order of the series, its income is 1000. Since each saving unit of 10,000 that is placed produces the same income of 1000, the interest is: i = R/V. Conversely, suppose you have twenty pockets of mines or lands, each one with give a rent of: R₁, R₂ … R₂₀ so that R₁, R₂ … R₂₀. And since the market assigns different prices depending on productivity, which will be, V₁, V₂… V₂₀, profitability will tend to be identical because i = R₁/V₁ …R₂₀/V₂₀. You cannot speak of the same amount of savings allocated to acquiring different assets (in which case interest would be rising) but rather of an amount of savings that is less whenever you have to pay, with this lesser savings, less for real assets that earn less.

  ⁶⁵  If owned land produces income simply by being owned and therefore earns interest (income for placed savings) and this value is known, and it is both objectively and institutionally transmissible due to property rights, one can draw the conclusion as Bernácer did: ‘Wealth lent for another’s use accrues interest or a profit in favour of its owner, equivalent to what he would obtain by employing it in the purchase of other’s lands’ (Society…, page 139). This was Turgot’s principle, but influenced more indirectly by Ricardo. Since Bernácer’s work was not totally known by Robertson, this is why Robertson called Bernácer a neo-physiocrat. I believe that this contribution by Bernácer in the physiocratic sense is useful, not due to referring exclusively to land -which lacks importance in Western economies- but because it opens up the enormous sectors of real assets (lands, property sites, mines, flats, etc.) to our understanding. Along with financial assets, they comprise Bernácer’s financial market.

  ⁶⁶  Capital has real interest (according to Swedish thought) or its marginal efficiency (according to Keynes), or its industry capitalisation rate, capital profitability or industrial profitability (in Bernácer), provided that they are in operation and are successful on the market, obviously. This is not so for real financial market assets that earn without entering into operation (Society…, page 153… A Free Market Economy…, page 130).

  ⁶⁷  To both Bernácer and Keynes, income will not only consist of obtaining financial interest, but also speculation. Since the latter in optimal circumstances means an increase in market prices ΔV, it will also mean a drop in interest. This decrease is compensated for by capital gains (a bad name, since they really mean speculative financial earnings). It is still worthy of attention that since 1916 in Society and Happiness, Bernácer understood this phenomenon. He stated (page 141): ‘Total gain of owners over a period of time is indicated by the income obtained in the same R, plus the price difference between the two times (P’ - P); However, the last term can only be estimated as a hope, on which probability land speculation is based. He said the same in his last book as in his first.

  ⁶⁸  Bernácer established multiple nuances in his work between actual speculative assets and genuine capital. The following statement expressed it well: ‘the two things to exchange are fundamentally different in this case; one is produced, another is not created; one is consumable, the other is amaranthine; value is the nature of one, the other is its utility. The impossibility of reaching equivalency in any case is exactly the origin of interest’ (Society, page 141). The system paradox is what stands out here that ‘what is necessary to produce –capital- and that is created, is frustrated by speculative income of the uncreated –landand other real assets. Bernácer insisted on the fact that interest compared to the creation of capitals, when real means are more than enough to produce it: labour and other working capital elements. Thus, he stated: ‘exactly at those times when the scarcity of capital is greatest is when labour is unemployed and capital articles stack up without buyers in warehouses… What happens is that the installation of fixed capitals determines the scarcity of financial capitals, since the operation’s result is to convert disposable savings into industrial funds and wages and payments in general… Conversely, savings not followed by the investment of money it forms increases disposable funds, which contributes to sustaining the market prices of income assets and keeping interest low, which is favourable for stimulating production, but has the serious shortcoming of taking money from the production circuit and decreasing production income, opposite to investment in real capital funds….’ (A Real Market Economy…, page 130.

  ⁶⁹  Null interest is an enormously complex issue that is outlined in the book The Interest of Capital, and studied in detail in the mathematical appendix, section D, 7 ‘Origin of Interest’, pp. 250-1 of the book A Free Market Economy… Conditions for the existence of null interest are thoroughly set forth (The existence of positive interest demands that these savings placements are at least an inseparable producer of non-productive income). We could ask Bernácer the following question: If income assets did not exist, would interest exist? In my opinion, the answer would be yes since everything would depend on the relationship between the demand for money and supply, supposing the superiority of the first. Above all, Bernácer did not make use of the relation between working capital and new money created, for the purposes of explaining interest. It could have been stated: the interest rate would be null or not supposing that the demand for money to finance working capital was satisfied by the creation of new money (all the production of consumer and capital goods is, in producers’ hands, working capital).

  ⁷⁰  Bernácer not only outlined the problem of cycles, but did it from the mechanics of the creation and distribution of income. This represented an innovation in 1916 and is very close to the Swedish School (Wicksell, Lindahl, etc.) although; I do not tire of repeating, with a different theory that is more an heir to Turgot. Bernácer’s explanation involves knowledge of the money market, the metabolism of disposable funds and exact knowledge of interest.

  ⁷¹  Society and Happiness (1916); in this book, he clearly set forth his criticism of theories that explain interest, key to understanding the cycles, as well. Chapters IV and V entitled ‘Theories on Interest’ and ‘The Law of Interest’ handle interest. Explaining cycles and crisis is book III ‘Social Problems’, chapters VII and VIII entitled ‘Symptoms of Crisis’ and ‘Explanation of Crises’. Oddly, he set forth his first ideas about state intervention (voluntary and involuntary) to solve crises through war (see chapters XIII and XIV ‘Wartime Economic Pretexts’ and ‘The Causes of War’).

  ⁷²  In Prosperity and Depression by Haberler (published in Spanish by Fondo de Cultura Económica, Mexico), the author acknowledged Bernácer’s merit in the prologue with regard to economic cycles. However, I do not know if Haberler knew of Bernácer’s disposable funds.

  ⁷³  It is not true that economists were as classical or neoclassical as believed before the thirties (all classical to Keynes). Robertson, as proved, said that if economists had read Bernácer, they would have abandoned the idea that earlier economists strictly believed in full employment (Essays on Monetary Theory, D.H. Robertson, last page).

  ⁷⁴  As you know, Bernácer’s explanation on cycles basically rests on the income determination model, in which interest plays a fundamental role. In any case, there is an explanation of crisis that doesn’t necessarily take the money market and interest into account (Society…, pp. 234-254). After monetary theory was created in The Theory of Disposable Funds (1992) and The Theory of Interest (1925), he was enabled to explain the origin and distribution of production income and, therefore, their oscillations. These oscillations occur due to flows of disposable funds (S – S_k = D) to and from the financial and ordinary markets. This traffic is due to the difference between interest and industrial profitability. It is thus understandable that a good explanation of economic cycles would appear in 1926 in his article entitled ‘The Economic Cycles’ (Revista Nacional de Economía, Madrid, Barcelona).

  ⁷⁵  Although Bernácer studied Malthus and showed this in chapters IX and X (entitled respectively ‘Malthus Theory according to Facts’ and ‘Malthus Theory according to Theories’ in the book Society…), he did not, as far as I know, infer the theory of actual demand like Keynes did in Malthus. I find this odd since Bernácer’s central hypothesis is precisely the lack of actual demand.

  ⁷⁶  The statement that working capital must be financed with new money is a basic mainstay in monetary theory and is confirmed with precision when explaining crisis, which is why it will appear later. However, in my judgement, he did not highlight this in the theory on interest, especially with respect to the insufficiency of savings. I believe savings is even more lacking than Bernácer depicted it.

  ⁷⁷  The concept of macroeconomic equilibrium via the analogy and difference between supply and demand, potential and actual, is found in The Theory of Disposable Funds (1922). There is no doubt of its importance given that unsuitability and cycles are expressed in the equilibrium formula. In Society… (6 years before The Theory…”) in chapter VII ‘The Wealth Dynamic’, the first law: ‘Total prices of the product mass (amount of changes executed in two equal production periods, added to the respective amount of working assets at the period end, have equal totals’… ‘This analysis technique, so basic, compares the value of what was with the current value and their difference to the variations of what is called working or disposable assets (money in pockets), measuring variations in demand. Demand variations measure the value of what was bought. He later reformulated this law, in light of currency monetisation, its immigration or emigration, etc. ‘Total prices allocated to two successive productions, added to the amount of working assets in each period, plus minted currency or less demonetised currency in the intermediate space, have equal sums’. He repeated the formulation in the epilogue of The Interest on Capital (1925) Section IX of said epilogue, p. 243 ‘Mathematical Equivalence between Product and Disposable Savings’. Like The Theory of Disposable Funds, it entailed an advance in monetary theory, its formulation does not alter but is more complicated. Works appeared like those of the Swedes and, especially, Keynes, with all the post-Keynesian works improved by Keynes, including Myrdal with his ex-antes and ex-post analysis. All of this converges in the identity of savings = investment. Bernácer criticised it and said: l. They forgot that new production of fixed capital in the hands of entrepreneurs is working capital that required new money. 2. Period savings will help acquire production from past capital, a process called investment (savings comes from previous production). 3. In some way, unsold production can be called capital or inventory investment. Bernácer’s equilibrium formulation then appeared in part I of The Functional Doctrine and chapters IV and V of A Free Market Economy… above all in Appendix 1, section a) entitled ‘The Value of Currency’.

  ⁷⁸  The enormous multiplying power of employment, production and construction employment is widely known. Likewise, when this sector drops, the contractive effects tend to be intense and explain crisis. Current investment in homes is considered from several aspects. One says that it is demand that depends on the way of placing wealth, which also depends on the yield of the home as an asset and its comparison with the earning of other assets like financial ones. At an extreme, it is one of the causes that explains liquidity preference.

  ⁷⁹  Remember the formula ΔA + Δc = ΔE + Δc and since ΔA + Δc = ΔM and ΔE + Δc = ΔK, where ΔM is the total increase in money and ΔK is the increase in working capital.

  ⁸⁰  A Free Market Economy… page 183, chapter XII, sections 2 and 3.

  ⁸¹  In essential pages A Free Market Economy…, Bernácer details the conditions for suitable monetary regulation and, therefore, for economic stability (chapter XII, section VIII: ‘What would Monetary Regulation Consist of?’, page 190.

  ⁸²  A key article for understanding Bernácer’s explanation of crisis is: ‘The Financial System and Crisis’ (Anales de Economía magazine, volume XIII-XV, 1953-55 no. 49-60), where he set forth the suitable requirements for the monetary regulation of equilibrium (final pages 147-48). He expressed the causes of crisis by two routes: 1.a.- Due to the existence of the financial market and interest; 2.a.- Due to financing fixed capital with savings, a basically depressive operation.

  ⁸³  Monetary multipliers relate reserves and deposits to cash-deposits to explain the expansion of monetary supply.

  ⁸⁴  The issue of financing working capital with new money and fixed capital with savings, as a requirement for equilibrium, is difficult to extract from Bernácer’s extensive body of work and try to summarise. It appears in Society… and in The Functional Doctrine… (and of course in the 1926 article ‘The Cycles’). The example of the tailor explains the origin of crisis with enormous simplicity (A Free Market Economy…, page 133); and a similar argument is repeated in the article ‘The Financial System…’, page 134, chapter III, ‘Spending and Saving’.

  ⁸⁵  The appearance of inventory investments is analysed in an article I published in the ICE Bulletin (Información Comercial Española del Ministerio de Economía y Hacienda, no. 2151, week 3-9 October 1988), José Villacís González ‘Genealogy of Inventory Investment’ (section Revista de Economía).

  ⁸⁶  The term net, applied to disposable funds is my term and is used to clarify Bernácer’s ideas a bit, as readers may think that they lack permanent existence on the financial market and are nothing but a temporary refuge on the road to spending. On the one hand, financial market neutral operations make us think (he did express this clearly) that disposable funds do not change their condition (The Theory of… and The Functional Doctrine). On the other hand, the state of disposable funds can be analysed that remain in the financial market as the result of the inputs and outputs there. These are the net disposable funds.

  ⁸⁷  The Financial System and Crisis

  ⁸⁸  Capital gains are the surpluses generated in financial assets speculatively. Bernácer rejected the term capital in this context. Capital will only be production installations or fixed capital.

  ⁸⁹  Note that they are situations that entail balancing a confrontation of some against others in order to balance out. Whoever wants liquidity sells assets to those who don’t want liquidity. They are opposite operations. Whoever is satisfied with their liquidity level, it is because he has sold to the person buying assets. This operation means buying and selling money.

  ⁹⁰  Jesús Prados: Treatise on Political Economics (published by the Universidad Complutense de Madrid), study on ‘Economic Cycles’. He made an inventory of theories related to economic cycles, stressing Bernácer’s. Prados did not use it to relate them to another aspect of Bernácer’s financial market, actual secondary assets, which he did study in his work on Chilean limited companies: Inflation and Economic Development, Edit. Aguilar, Madrid, 1956.

  ⁹¹  Bernácer’s most-extensive explanation on crises is found in chapter IX of part three of the book A Free Market Economy…

  ⁹²  The term dead wealth or illusions of wealth was coined by Prados Arrarte, who defined the real and financial assets on Bernácer’s financial market in this way with great precision (from ‘Treatise on Political Economics’ and ‘The Economic Cycles’).

  ⁹³  About the pernicious effects of the gold standard: A Free Market Economy…, chapter IX, section 10. The following section 11 of the same book, ‘The Propagation of Cycles’, deals with criticism of fixed exchange rates, as a propagating element of cycles. Obviously, since the gold standard is a fixed or semi-fixed rate, it is destabilising.

  ⁹⁴  The article published in El Trimestre Económico (Mexico, April-June 1948) entitled ‘Bimetallism: Review of its Cause’ is of great interest with respect to the gold standard. Sections VIII and IX are very revealing, entitled ‘Monetary Anarchy’ and ‘The Gold Exchange System’, respectively (page 16-21).

  ⁹⁵  ‘Chronic Inflation in Social War’ (Anales de Economía magazine, volume XX, April 1962, no. 70) chapter VII, page 308, which reads: ‘the establishment of the value of money in a single commodity doesn’t even have the virtue of stabilising the purchasing power of money in real merchandise.’

  ⁹⁶  The central illustrative mechanism of cycles is in section 8 of chapter IX of A Free Market Economy entitled ‘Outline of the Mechanism of Crises’, page 141. Bernácer gives an example of a hydraulic ram in which the speed of the flow of water closes the output valve. He actually had a ram at the Business Studies School, which he used for physics experiments in his Testing and Assessment of Commercial Products class.

  ⁹⁷  José Villacís: ‘Vida y Obra de Germán Bernácer’; Valencian magazine S’Pill (written in Valencian) year 1983 no. 19.

  ⁹⁸  José Villacís ‘Breve Síntesis de la Macroeconomía de Germán Bernácer’ ESIC Market magazine no. 53, July-September 1986.

  ⁹⁹  José Villacís ‘La Teoría Macroeconómica de Germán Bernácer’, ICE Bulletin, July 1986 no. 2043 (Ministry of Economy and Treasury: Spanish Commercial Information).

¹⁰⁰   Bernácer was referring to the fact that he took it from Turgot, although his macroeconomic exposition is original to him. He referred to the capacity of money to be invested and to ‘yield’.

¹⁰¹   José Villacís La Teoría Macroeconómica de Germán Bernácer; Católica Portuguesa magazine; volume IX, October 1985, no. 3

¹⁰²   José Villacís Macroeconomía Dykinson publishing house 1986; Madrid, chapter devoted to Germán Bernácer

¹⁰³   Bernácer did not make a mistake in speaking of material production, as it fit into his explanation of the production of income.

¹⁰⁴   The analogy, object of this section, is followed by Keynes (the Keynes of 1930) in his Treatise on Money (1930) V 1, page 154… (later in The General Theory on Employment, Interest and Money; McMillan, London 1954, although the book was first published in 1936). Bernácer had established macroeconomic equilibriums, already sketched in Society…, and arithmetically with strict symbolism in Epilogue IX ‘Mathematical Equivalence between Savings and Disposable Products’ in 1925, with the publication of the article ‘The Theory of Disposable Funds’ from 1922 in between. Thus, when Keynes’ work appeared, he had 500 already explored this in depth and is the reason why he understood it so well. According to Robertson’s words (from the article in Económica in 1940), it was already known in the thirties. In my judgment, this analogy does not hold special interest. Bernácer formally established the analogy between himself and Keynes in The Functional Doctrine… in the chapter ‘Similar Anglo-Saxon Doctrines’ page 217 (1956 edition, the first was 1945).

¹⁰⁵   These are economic explanations emitted by Bernácer about Keynes’ equation.

¹⁰⁶   The first time that Bernácer established this analogy was in the article entitled ‘Monetary Theory and the Market Equation’ published in the magazine Anales de Economía no.1, March 1941, a year in which the two cited books by Keynes had already been published.

¹⁰⁷   The exposition of this formulation by Keynes (that Bernácer compared) appeared in an enormous number of economics books, including Tratado de Economía by Jesús Prados Arrarte in volume VIII (Guadiana publishers, 1973) Chapter XVIII, page 94-5-6. Prados, who knew Bernácer and had a deep respect for him, did not know of his work. He did not mention him at all in this work. Ignorance about Bernácer was constant, but at the end of his life, Prados incorporated it into his explanation of the cycles (from Tratado… book: ‘Los Ciclos…’, Edit. Universidad Complutense de Madrid). This is an argument that challenges the supposed conspiracy of silence against Germán Bernácer. Prados was an economist who before, during and after his exile always tried to rescue the knowledge of Spanish-speaking economists for scientific economics. His entry in the Spanish Academy spoke of a Spanish economist: Alvaro Flores Estrada. If Prados did not know of Bernácer’s work, it is understandable and logical that other economists did not know it either.

        Prados never imagined that his study of Chilean Limited Companies in 1956, published approximately 2 years after the famous meeting in Granada, when he himself introduced the two economists, Robertson and Bernácer, would statistically also prove Bernacerian theory about the undercapitalisation of companies. As mentioned (and will be repeated), this work was published in a book entitled Inflación y Desarrollo Económico, Aguilar Publishers, 1956. Madrid.

        In 1984, I published an article in the magazine Pensamiento Iberoamericano (magazine on political economics) no. 6, July-December 1984, entitled ‘El Paralelismo de Bernácer y de Prados Arrarte en la Macroeconomía’. In this work I stressed how producers’ disposable funds (Bernacerian term) were transformed into maximum or net-speculative disposable funds, in the bridge of sinking funds, which was what Prados studied. He stressed the movement of amortisable investments (fixed assets) into non-amortisable investments (building sites, etc.). Companies would not decapitalise if the two are called investments; but not if only the fixed capital is called investment.

¹⁰⁸   Part of restricted monetary supply, or M_I

¹⁰⁹   I insist that it is improper to speak of three classes of money; one could perhaps say that money exists in different places. It was an imprecise scientific expression.

¹¹⁰   G. Bernácer, The Functional Doctrine (1945), chapter ‘Similar Anglo-Saxon Doctrines’ page 223-4 (the 1956 edition) commented on the three classes of money established by Keynes in chapter III of Treatise and expanded upon in chapter XV. The speculative motive would be opened in 1936 in The General Theory…

¹¹¹   Keynes, Bernácer insisted, changed his way of thinking and had not evolved in 1936 with The General Theory compared to The Treatise (1930).

¹¹²   Bernácer clarified and revealed the contradictions of Keynes’ liquidity preference, as well as highlighting their difference from disposable funds in The Functional Doctrine, chapter ‘Liquidity and Disposable Funds’, pp. 279-293. What Bernácer said was revealing in that he didn’t understand how Keynes purported that savings could be kept liquid while at the same time being capitalised (page 285). This issue appeared again in ‘Metric Economics’ Arquímedes magazine, section ‘The Keynesian Solution’, page 53 (1955-6). The clearest distinction between liquidity and disposable funds is found in A Free Market Economy…, chapter III, section 5 ‘Disposable Funds and Liquidity’.

¹¹³   ‘Metric Economics’ op. cit, page 52 (Arquímedes magazine) section 11 ‘The Walras Method’

¹¹⁴   A Free Market Economy, page 45. Bernácer insisted (as I do) not so much in their similarity, but rather that each concept and idea has a different name and is distorted.

¹¹⁵   To readers’ irritation, Bernácer did not specify the term demand for capital that he put into Keynes’ mouth. I do not know if it is capital as a factor of production or money financing this capital or simply money. Neither do I know what he was thinking when speaking of marginal utility… marginal utility of what? If capital is money, it would be the marginal utility of money in the sense of Marshall but if it is a factor of production, in my understanding it would be approximately equal to the marginal efficiency of capital.

¹¹⁶   The precedent to this from 1945 in The Functional Doctrine can be found in the article from 1941 entitled ‘Monetary Theory and the Market Equation’ (Anales de Economía).

¹¹⁷   Capitalist savers are the people who hold savings and lend it or spend it. To me they are not different from consumers or industrialists. In reality they are the same but with a different function. Capitalist savers are different due to the savings they have.

¹¹⁸   Third-degree or maximum disposable funds remain in this state in the financial market. The others, first-degree of consumers and second-degree of producers have ephemeral life. Whenever I speak of disposable funds, they are simply the maximum ones.

¹¹⁹   The Functional Doctrine chapter VI of book II, ‘The Postulate of Savings equal to Capitalisation’, page 266-267-8. Bernácer emphasised that the statement that savings is always equal to placed capital is wrong for two reasons: 1. Because savings is not immediately placed and; 2. Even if it is, placed savings remains a disposable fund of the new holder (old capitalisations).

¹²⁰   The Functional Doctrine…, page 288. He criticised Keynes with great skill by saying that liquidity is incompatible with the identity S = I, bearing in mind that it is a part of noncapitalised savings. On page 285, he said, as previously stated (page 285), that the liquidity state is not possible, which by definition is non-capitalised savings and moreover, by admitting the equality S = I, this means that savings has been capitalised: ‘And I cannot understand how it is possible to capitalise savings and keep it liquid at the same time…’

¹²¹   See the article: ‘The Postulates of Equivalency between Production and Income and between Savings and Capitalisation’, magazine Anales de Economía; Madrid, 194 (this article does not appear in the reference appearing in the final notes, last page of A Functional Doctrine in which Bernácer’s articles are listed. There is another footnote that explains that this article will be set forth in the book A Functional Doctrine and will appear in 1945 (page 266). Potential supply and demand are not casual events but critical ones, but not so with actual supply and demand… he stated on page 154. This article precedes chapter VI of the cited book 11 of The Functional Doctrine…, page 266. In his criticism of Keynes, he stated that Keynes did not admit the equivalency S = I in the Treatise… (1930), but in 1936 he made it the pivot of his doctrine. The difference is that in Keynes they are contingent profits and for Bernácer, they were financial market disposable funds.

¹²²   D = disposable funds; S_k capitalised savings and R in this case is production income.

¹²³   This was first set forth in a previous heading entitled ‘A Serious Mistake by Germán Bernácer’ section 15.5.1 of the chapter ‘Interest Revisited’.

¹²⁴   The Functional Doctrine…, chapter VI of book 11

¹²⁵   Critical Appendix III, section A from A Free Market Economy… is of interest here, pp. 276-283. He made a comprehension revision of the postulates that supposedly guarantee that S = I. He somewhat defended Keynes by trying to judge his thought correctly, against his own students. Section D of this appendix is also of interest, section 4 entitled ‘Investment in capital or invested savings?’

¹²⁶   A Free Market Economy…, the cited defence of Keynes is on page 277 (critical appendix III) where it says: ‘The case is that Keynes had conserved the fundamental distinction of the terms in the equation Y = O (O value of production) by defining Y as monetary income and O as the value of production and he did not say this was an identity (my italics).

¹²⁷   The Functional Doctrine…, page 215 and 221

¹²⁸   D. H. Robertson, Essays on Monetary Theory, chapter XVI

¹²⁹   Remember Bernácer’s comment about Robertson’s point in The Functional Doctrine…, page 219. Bernácer carried out the division of time into periods, or monetary dynamic vision, in his book from 1925, The Origin of Interest…, page 244 notes.

¹³⁰   To prevent confusion, I must state that when speaking of the capital market, I am referring to the savings market. This is Hawtrey’s meaning common to normal terminology.

¹³¹   Until this point, any article can be consulted referring to monetary equilibrium; for example ‘The Monetary Equation in the Mercantilist World’ published in Anales de Economía in 1943.

¹³²   Germán Bernácer: Admission conference as an Academic Correspondent at the Academy of Economic and Financial Sciences in Barcelona. The article was dated April 1959, Madrid.

¹³³   G. Bernácer, A Free Market Economy…; The Stabilisation of the Economy, chapter XII, section I; Conditions for Economic Stability, page 181. Chapters XII, XIII, XIV of A Free Market Economy… contain a summary of economic and social policies, Bernácer’s moral philosophy.

¹³⁴   G. Bernácer: A Free Market Economy…, chapter XII, section III, page 183 ‘Collection and Gathering of Savings’. This aspect is essential for understanding monetary equilibrium, since savings, child of previous production, must necessarily return to the system.

¹³⁵   G. Bernácer: A Free Market Economy…, chapter XII, section IV, page 185 ‘Public Capitalisation’.

¹³⁶   G. Bernácer, A Free Market Economy… chapter XII, section VI, page 187, ‘Private Property in the New Regime’. In this work, he explained the proposed way to defend private property above everything else and, simultaneously, eliminate the speculation of goods that were not productive, but that are private property.

¹³⁷   G. Bernácer; A Free Market Economy… chapter XII, section VII ‘Companies’ Financial Systems’, page 189, is very important for understanding monetary regulations. In the same book, chapter 11 on interest, sections 8 &9, pages 33-5 and also chapter V in The Functional Doctrine…

¹³⁸   G. Bernácer, A Free Market Economy… chapter XII, section VIII, page 190-191. ‘What will Monetary Regulation Consist Of?’ essential because it summarises monetary circulation and the conditions to assure the return of income generated in the system to the system and the need to create new money to finance working capital. Monetary infractions are also specified.

¹³⁹   These would be maximum or authentic disposable funds, which in the absence of a financial market are temporary disposable funds, since their immediate end will always be capitalisation.

¹⁴⁰   I use the same title as Bernácer in A Free Market Economy… chapter XII, section IX, page 191 ‘Private Payments in the New Regime’. These private payments in an ideal system with economic justice would exclude interest as a payment for capital.

¹⁴¹   G. Bernácer, A Free Market Economy…, Critical Appendix III, section III… ‘The Doctrine of Exploitation of Workers’, page 286.

¹⁴²   G. Bernácer, ‘From Chronic Inflation to Social War’, Anales de Economía magazine, volume XX, April 1962, no. 270. This article explained the nature of inflation, especially section 11 entitled ‘The Values of Money’, page 291.

¹⁴³   G. Bernácer, Society and Happiness, book III, chapter XIV, page 309. Since the beginning, one sees a concern in Bernácer about war conflicts as born from economic causes and also a solution to these economic evils. In A Free Market Economy…, he explained how war can be a fiscal and monetary policy that increases demand either involuntarily or voluntarily. See chapter XIII, section 5.10 and 11 of this same book. ‘The Financial System and Crisis’ (Anales de Economía magazine, volumes XIII and XV 1953-1955, no. 2 49-60) textually reads: ‘And if the origin of funds doesn’t really matter much, then neither does their destination; it doesn’t matter if money from any origin is spent on useful works, on employment subsidies or, if they do not want to promote paid idleness, boring holes in the street and then filling them in with rubble…’ (page 146).

¹⁴⁴   G. Bernácer, A Free Market Economy… chapter XIV, section 15, page 225 ‘Tax and Forced Work’ and chapter VI, section 9, pages 9-3-4.

¹⁴⁵   G. Bernácer, Chapter IX, section 10, page 144; also in chapter XIII, page 201 of the book A Free Market Economy…; The Functional Doctrine.., book 1, chapter VI (book), article entitled ‘Thirst for Gold’, Española magazine (Madrid) 1936; Conference: ‘Monetary Stability’, Madrid 1943 (Association of Trade Actuaries).

¹⁴⁶   G. Bernácer: The Doctrine of the Large Economic Space, Aguilar publishers, 1953, Madrid (Spanish and European Economic Studies), a book that while explaining the consequences of the economic space, was not directly connected to the rest of Bernácer’s work. A Free Market Economy…, chapter III, sections 9, 10 and 11 respectively entitled ‘International Trade’, ‘The Economic Space’ and ‘Economic Space and Political Space’.

¹⁴⁷   G. Bernácer, A Free Market Economy… Critical Appendix, section VIII, page 307, in which he pointed out a criticism of fiscal policy, as well as in the already-mentioned article ‘The Financial System and Crisis’.

¹⁴⁸   Bernácer, ‘Metric Economics’ article, section 11; ‘The Measurement of what is Psychological’ page 53 (Arquímedes magazine, Madrid 1955)

¹⁴⁹   Bernácer, Metric Economics, section 11, ‘The Swedish Solution’. The book A Free Market Economy…, chapter II, section XI, is of great interest where he stated that even the misnamed forced capitalisation (unsold production or investment) or inventory investments (modern terminology) is in reality voluntary and deliberate. Why? Because capitalisation and investment are different events, starring agents that may or may not be different. The producer or entrepreneur produces and the investor or capitalist invests, with the latter ceding funds (savings) so that production takes place. In this way, funds are transferred for production that later doesn’t need to be sold, it is done voluntarily and deliberately, without it making sense to say that simply because demand has not removed production, it has become involuntary.

¹⁵⁰   Bernácer, Metric Economics, section I, ‘The Mechanical Era’, ‘The Geometric Era’, ‘Tautology’, ‘Economic Metrology’… Methodological Appendix 11, page 261.

¹⁵¹   Bernácer: ‘The Computation of National Income’; I do not know the year or the magazine where this article was published and only had the photocopied text from the Bernácer family. It does not appear either in the index of Bernácer’s works that are listed at the end of the book The Functional Doctrine of Money, due to which I suppose that it was published after 1954. The last or most advanced publication cited by Bernácer in his index is the conference ‘The Economist’s Mission’, Madrid 1954 (Business Studies School).

¹⁵²   Bernácer, A Free Market Economy… Methodological Appendix 11, Section C ‘The Mathematical Method’, page 261. Also, ‘Metric Economics’ in Archímedes magazine, pp 49-52.

¹⁵³   This is a symbolic example that mathematicians can easily understand. If the chalk trembles, it causes a break in the line, which makes the function not continuous. It is doesn’t jump, then a brusque movement occurs that is very typical of discrete variables.

¹⁵⁴   Bernácer, A Free Market Economy… Critical Appendix III, Section C: ‘Liquidity Preference’, see section 2 entitled ‘Liquidity Preference as a Mathematical Concept’, page 291.

¹⁵⁵   Bernácer, Metric Economics, section ‘Tautologies’; also in The Functional Doctrine…, book II, chapter IV, where he criticised the sterility of the quantitative identity. Meriting mention are the comments in the article ‘Monetary Theory and the Market Equation’, pp. 43-7 Anales de Economia (Madrid) 1941.

¹⁵⁶   I refer only to amortisation or the formation of sinking funds, not to the following operation that is technical amortisation, replacement investment or replacement of the capital goods made using the sinking funds.

¹⁵⁷   R can mean production income and financial market income. D will always be disposable funds.

¹⁵⁸   My information: origin of the surname Bernácer from the book El Solar Catalán, Valenciano y Balear, by García Garrafa and A. Cebrián, p. 211, volume 1. The book says:

        BENNASAR or BENNASER or BENNASAAR: genealogists on the island of Mallorca say that this lineage is from a Moor called Benebeth, señor de Alfobia, Inca y Pollenza, who, while governor of one of the regions of the island, converted to Christianity and provided significant services to Jaime I in the conquering of the archipelago. Juan Bennasar, who according to some authors was the child of the aforementioned Moor, was a citizen soldier and gentleman of Alfabia, since he had registered this farmhouse in the perpetual census of count Nuño Sanz wtih all of its mills by virtue of instruments from the year 1240. In the book Els llinatges Catalans by Francesc B. Moll, page 303 says: ‘Bennacer, Bennássar, Bernácer, Bernázar. From the Arabic ibu-Nasr, son of Nasser (own personal name). Information from Miss Ana C. Tutzo.

¹⁵⁹   Manuel Oliver Narbona ‘Human Profile of Germán Bernácer’, Caja de Ahorros de Alicante y Murcia, Alicante 1983, p. 33

¹⁶⁰   In the last edition of his book History of Economic Doctrines, Lucas Beltrán Flores mentioned Germán Bernácer for the first time (page 391-2, Editorial Teide, Barcelona, 1989 Edition).

¹⁶¹   Bernácer’s life at the Bank of Spain is discussed in a work by Pablo Martín Aceña (Hacienda Pública magazine no. 81, page 109, ‘Germán Bernácer and Research Services at the Bank of Spain’ by the Fiscal Studies Institute, Madrid 1983).

¹⁶²   He held this post more because of his mastery of English, French and German, which were very useful languages in the small Tower of Babel of the Republican army, than because of his military knowledge.

¹⁶³   Following the article by Martín Aceña

¹⁶⁴   I do not know if his permanence in Valencia was decided based on his own will or if it was decided this way by the authorities at the Bank. Maybe the circumstances, chaotic as they were, were what decided.

¹⁶⁵   Movimiento is the name used to describe the political ideology that imposed a national uprising and that theoretically accompanied it during the government.

¹⁶⁶   Oliver Narbona, Manuel. Op. cit. page 76

¹⁶⁷   There must be something else. How could Robertson remember a small manuscript received from abroad from an unknown economist for almost 16 years? It is inexplicable.

¹⁶⁸   For me, the main cause of his voluntary isolation was perhaps due to the Spanish post-war environment in 1939 and the following years. It is a difficult, if not impossible, environment to recreate so that current generations can understand it.

¹⁶⁹   I insist that readers should not confuse production income or national income, springing from the ordinary market, with speculative or non-productive income from the financial market.

¹⁷⁰   When referring to capital, Bernácer was considering savings-money.

¹⁷¹   Note: Despite the fact that bibliographic research was the fruit of my work, the organisation by titles and languages was taken from the explanatory brochure from the Documentation Centre of the Caja de Ahorros de Alicante y Murcia (CEDOCAM) due to the homage celebrated in the city for the centenary of Germán Bernácer’s birth on 28-30 November 1983.

¹⁷²   With respect to articles in the press, I had the help of the Bernácer family and particularly the comprehensive list set forth by Professor Henri Savall in his book Germán Bernácer.

¹⁷³   Bernácer’s original article, as mentioned, was not exclusively published in Barcelona as stated here, but in Madrid, Barcelona (Revista Nacional de Economía).

¹⁷⁴   Robertson’s article was published in volume VII (new series) of Económica; London, February, 1940.