Power Theory of Exchange and Money

Round 1

Reviewer 1 Report

The present study is novel, interesting, important, and complex at the same time. Indeed, theories about exchange and money tend to ignore the problem of power. However, the authors need to address a few issues before publication is considered:

• The authors chose not to have a separate literature review section, but rather to present the relevant literature throughout the article. While this is not problematic in and of itself, it can make the article difficult to read. I would suggest a better delineation of the original contribution of the authors of the existing literature, for example, by placing the existing state of knowledge at the beginning of each (sub)section. At the same time, the use of citations should be reduced and the ideas of the cited author should be reformulated by the authors of this article in their own words, explaining the importance of the idea for the topic of the article;
• In some cases, the cited literature is presented as follows: Author(s) X studied phenomenon Y. This should not be allowed. The authors' ideas should also be discussed, and the sentence should have the form: Author X studied phenomenon Y and argued that ... This is the case at lines 120, 285;
• The authors briefly discuss the concept of power from different angles, but finally decide to use the Weberian view on this phenomenon. This choice should be better justified. A short paragraph should suffice for this clarification;
• At line 280, “one” should be replaced by “1”;
• The quote from Marx that begins on line 229 must be in English only, not both in German and English. If the translation from German to English has been carried out by the authors, as it appears, it must be clearly stated.
• The money multiplication process (lines 657 to 662) should be better described. The meaning of the phrase, "Importantly, in order to issue a loan, a bank does not need to have same amount of money" should be clarified. This entire paragraph (652 to 670) suffers from the use of excessively simplistic phrases and ideas; it should be rewritten. Here, on line 662, "criticism" should be replaced by "critics". Better arguments should be made about the usefulness of discussing the money multiplication process in the context of the article's topic, for example expanding on the relationship between money creation and power;
• The Conclusions section (the use of the plural form is advised) should contain an additional paragraph to describe the original contributions as opposed to the state of knowledge in this area as well as its importance;
• Finally, the References section should be reviewed as it contains the use of different styles, e.g., the title of a book is all in capital letters or only the first word, etc.

To conclude, the proposed article can be a solid piece of theoretical contribution if the authors are able to address the above questions.

Author Response

Dear Reviewer

Thanks a lot for the valuable comments! I tried my best to make the appropriate changes and additions to the article. Below I give a report, where under each comment is indicated the place in the article where the changes were made. The numbering is indicated for the case when the changes made to the document are displayed.

Response to Reviewer 1 Comments

Point 1: The authors chose not to have a separate literature review section, but rather to present the relevant literature throughout the article. While this is not problematic in and of itself, it can make the article difficult to read. I would suggest a better delineation of the original contribution of the authors of the existing literature, for example, by placing the existing state of knowledge at the beginning of each (sub)section. 


Response 1: Changed on lines 457, 707.

Point 2: At the same time, the use of citations should be reduced and the ideas of the cited author should be reformulated by the authors of this article in their own words, explaining the importance of the idea for the topic of the article; In some cases, the cited literature is presented as follows: Author(s) X studied phenomenon Y. This should not be allowed. The authors' ideas should also be discussed, and the sentence should have the form: Author X studied phenomenon Y and argued that ... This is the case at lines 120, 285;

Response 2: Changed on lines 129, 297.

Point 3: The authors briefly discuss the concept of power from different angles, but finally decide to use the Weberian view on this phenomenon. This choice should be better justified. A short paragraph should suffice for this clarification;

Response 3: Added lines 272-274

Point 4: At line 280, “one” should be replaced by “1”;

Response 4: Changed on line 291

Point 5: The quote from Marx that begins on line 229 must be in English only, not both in German and English. If the translation from German to English has been carried out by the authors, as it appears, it must be clearly stated.

Response 5: Changed on line 238-

Point 6: The money multiplication process (lines 657 to 662) should be better described. The meaning of the phrase, "Importantly, in order to issue a loan, a bank does not need to have same amount of money" should be clarified. This entire paragraph (652 to 670) suffers from the use of excessively simplistic phrases and ideas; it should be rewritten. Here, on line 662, "criticism" should be replaced by "critics". Better arguments should be made about the usefulness of discussing the money multiplication process in the context of the article's topic, for example expanding on the relationship between money creation and power.

Response 6: Added lines 667-710

Point 7: The Conclusions section (the use of the plural form is advised) should contain an additional paragraph to describe the original contributions as opposed to the state of knowledge in this area as well as its importance;

Response 7: Added lines 730-745. Added the section “Results” according to journal’s template.

Point 8: Finally, the References section should be reviewed as it contains the use of different styles, e.g., the title of a book is all in capital letters or only the first word, etc.

Response 8: Changed on lines 785-860. The tool https://www.scribbr.com/apa-citation-generator/ was used.

Reviewer 2 Report

I consider it an interesting article for economic theory and I value the contribution made by establishing a system of two equations (one that includes the subjective and the other the subjective conditions) to explain isolated exchange.

However, I would like to raise some criticisms:

- The introduction mentions Walras' general equilibrium model and other theories that do not fully explain simple exchange. I would like reference to be made to Carl Menger's contribution in his Principles of Political Economy. Although several authors developed the idea of the MUT, Menger's approach does not use mathematical language, unlike Walras or Jevons. I believe that his disciple, Böhm von Bawerk, does provide an explanation of isolated exchange in his work Capital and Interest, when he analyses a transaction with horses between a potential buyer and a potential seller, indicating that for there to be an exchange there has to be an inequality of subjective valuations (that each party values more what he is going to obtain than what he is going to deliver), to discover entrepreneurially the opportunity for profit and to set a price that will be in a range between the minimum price the horse owner is willing to sell for and the maximum price the potential buyer is willing to pay. It is within this range that bargaining power comes into play, which is what this article seeks to quantify. The text refers to the errors of the LTV, which Böhm von Bawerk himself dismantled, but what are his criticisms of the MUT?

- There is no methodology section. According to the journal's template there should be such a section. There is also no results section. The structure of the article should be changed.

- The references are scarce, I suggest incorporating some on different topics:

In relation to fractional reserve and monetary creation by private banks:

Huerta de Soto, J. (2009). Money, bank credit, and economic cycles. Ludwig von Mises Institute. The author is an advocate of the 100% ratio.

In relation to monetary creation, it would be interesting to analyse the expansionary policy of central banks, especially after the 2008 financial crisis and the 2020 pandemic. I recommend these articles:

Echarte Fernández, M. Á., Náñez Alonso, S. L., Jorge-Vázquez, J., & Reier Forradellas, R. F. (2021b). Central banks' monetary policy in the face of the COVID-19 economic crisis: Monetary stimulus and the emergence of cbdcs. Sustainability, 13(8), 4242. https://doi.org/10.3390/su13084242

Levin, A., & Sinha, A. (2020). Limitations on the effectiveness of monetary policy forward guidance in the context of the COVID-19 pandemic. National Bureau of Economic Research. http://dx.doi.org/10.3386/w27748

In relation to cryptocurrencies, it would be good to talk about bitcoin as it has a limit on the total supply, and is different from other cryptocurrencies. I recommend these references:

Ammous, S. (2018a). The bitcoin standard: The decentralized alternative to central banking. John Wiley & Sons.

Chowdhury, N. (2019). Bitcoin: World's first cryptocurrency. In Inside Blockchain, Bitcoin, and Cryptocurrencies (pp. 61-89). Auerbach Publications. http://dx.doi.org/10.1201/9780429325533-4

It would be interesting to include the virtual currencies of central banks in the banking section, and I recommend including some references:

Náñez Alonso, S. L., Echarte Fernández, M. Á., Sanz Bas, D., & Kaczmarek, J. (2020). Reasons fostering or discouraging the implementation of central bank-backed digital currency: A review. Economies, 8(2), 41. https://doi.org/10.3390/economies8020041

Bacchetta, P., & Perazzi, E. (2021). CBDC as imperfect substitute for bank deposits: A macroeconomic perspective. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3976994

Author Response

Dear Reviewer

Thanks a lot for the valuable comments! I tried my best to make the appropriate changes and additions to the article. Below I give a report, where under each comment is indicated the place in the article where the changes were made. The numbering is indicated for the case when the changes made to the document are displayed.

Response to Reviewer 2 Comments

Point 1: The introduction mentions Walras' general equilibrium model and other theories that do not fully explain simple exchange. I would like reference to be made to Carl Menger's contribution in his Principles of Political Economy. Although several authors developed the idea of the MUT, Menger's approach does not use mathematical language, unlike Walras or Jevons. I believe that his disciple, Böhm von Bawerk, does provide an explanation of isolated exchange in his work Capital and Interest, when he analyses a transaction with horses between a potential buyer and a potential seller, indicating that for there to be an exchange there has to be an inequality of subjective valuations (that each party values more what he is going to obtain than what he is going to deliver), to discover entrepreneurially the opportunity for profit and to set a price that will be in a range between the minimum price the horse owner is willing to sell for and the maximum price the potential buyer is willing to pay. It is within this range that bargaining power comes into play, which is what this article seeks to quantify. The text refers to the errors of the LTV, which Böhm von Bawerk himself dismantled, but what are his criticisms of the MUT?. 


 Response 1:  Concerning Böhm von Bawerk and his exchange model, the article mentions the similarity of the behaviour of utility and generalized power before and after exchange (line 375), that is, in the case of evaluations of both utility (this is a subjective parameter that Böhm von Bawerk writes about) and generalized power the motivation of exchanging parties is the wish to improve the state of each party on each of these two parameters - subjective and objective. (line 650) Thus, the proposed approach is not a criticism of MTU, but rather complements the subjective point of view presented by MTU with another objective point of view presented in the article.

Thank you very much for mentioning Carl Menger, I added a citation of him which correspond very good to my research. Added lines 384-386.

Point 2: There is no methodology section. According to the journal's template there should be such a section. There is also no results section. The structure of the article should be changed.

Response 2: Added lines 61-66 (section “Methodology”) and lines 730-745 (section “Results”)

Point 3: The references are scarce, I suggest incorporating some on different topics:

In relation to fractional reserve and monetary creation by private banks:

Huerta de Soto, J. (2009). Money, bank credit, and economic cycles. Ludwig von Mises Institute. The author is an advocate of the 100% ratio.

Response 3: Added on lines 693,795

Point 4: In relation to monetary creation, it would be interesting to analyse the expansionary policy of central banks, especially after the 2008 financial crisis and the 2020 pandemic. I recommend these articles:

Echarte Fernández, M. Á., Náñez Alonso, S. L., Jorge-Vázquez, J., & Reier Forradellas, R. F. (2021b). Central banks' monetary policy in the face of the COVID-19 economic crisis: Monetary stimulus and the emergence of cbdcs. Sustainability, 13(8), 4242. https://doi.org/10.3390/su13084242

Levin, A., & Sinha, A. (2020). Limitations on the effectiveness of monetary policy forward guidance in the context of the COVID-19 pandemic. National Bureau of Economic Research. http://dx.doi.org/10.3386/w27748.

Response 4: Added on line 685.

Point 5: In relation to cryptocurrencies, it would be good to talk about bitcoin as it has a limit on the total supply, and is different from other cryptocurrencies. I recommend these references:

Ammous, S. (2018a). The bitcoin standard: The decentralized alternative to central banking. John Wiley & Sons.

Chowdhury, N. (2019). Bitcoin: World's first cryptocurrency. In Inside Blockchain, Bitcoin, and Cryptocurrencies (pp. 61-89). Auerbach Publications. http://dx.doi.org/10.1201/9780429325533-4.

Response 5: Added on line 578

Point 6: It would be interesting to include the virtual currencies of central banks in the banking section, and I recommend including some references:

Náñez Alonso, S. L., Echarte Fernández, M. Á., Sanz Bas, D., & Kaczmarek, J. (2020). Reasons fostering or discouraging the implementation of central bank-backed digital currency: A review. Economies, 8(2), 41. https://doi.org/10.3390/economies8020041

Bacchetta, P., & Perazzi, E. (2021). CBDC as imperfect substitute for bank deposits: A macroeconomic perspective. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3976994.

Response 6: The topic of virtual currencies of central banks is very interesting. It is unlikely that I will be able to reveal this topic within the framework of this article. Perhaps these issues are best considered in a separate article.

Reviewer 3 Report

Dear Authors,

The article is very interesting. Needs a few adjustments:

• In the article, I do not only see appropriate abstract.
• The methodology should be clearly written in the abstract and then in the introduction.
• It is worth better emphasizing the scientific value and added value of the article.
• I suggest extending the literature review – especially with current scientific items
• It is also worthwhile to describe the limitations of this study in conclusions
• It is worthwhile to better describe future research on the topic under study

Author Response

Dear Reviewer

Thanks a lot for the valuable comments! I tried my best to make the appropriate changes and additions to the article. Below I give a report, where under each comment is indicated the place in the article where the changes were made. The numbering is indicated for the case when the changes made to the document are displayed.

Response to Reviewer 3 Comments

Point 1: In the article, I do not only see appropriate abstract The methodology should be clearly written in the abstract and then in the introduction.

Response 1: Added lines 19,20. Added lines 61-66. I added “Methodology” section according to journal’s template.

Point 2: It is worth better emphasizing the scientific value and added value of the article.

Response 2: Added lines 730-745

Point 3: I suggest extending the literature review – especially with current scientific items.

Response 3: I have added several sources. I'm afraid in the limited time frame I can hardly make a very broad review of the literature.

Point 4: It is also worthwhile to describe the limitations of this study in conclusions.

Response 4: Added lines 761-763

Point 5: It is worthwhile to better describe future research on the topic under study.

Response 5: Added lines 769-777

Round 2

Reviewer 3 Report

Dear Authors,

Thank you for making corrections. I think it is acceptable now.