It has been suggested that this article or section be merged into Monetary policy. (Discuss)
Monetary theory (known also as money/macro theory) is a major branch of macroeconomics and a framework of analysis that deals with monetary systems and their effect on equilibrium with production, employment and the level of prices within a macroeconomy.[1] In it's own definition, it deals with the difference between "broad money", typically non-circulating currency such as deposit certificates and treasury bills and "shallow money" that circulates amongst the population of an economy. Within monetary theory, the problems and benefits between these monies are compared using "spending" and "goods-against-goods" (Say's Law) [2]approaches, each of which stipulate the socio-economic repercussions when one approach dominates the market over the other in varying degrees. Image File history File links Merge-arrow. ... It has been suggested that monetary theory be merged into this article or section. ... Circulation in macroeconomics Macroeconomics is a branch of Economics that deals with the performance, structure, and behavior of the economy as a whole. ... Nominal value is the value of anything expressed in money of the day, versus real value which removes the effect of inflation. ... Treasury Securities are bonds issued by the U.S. Federal Reserve. ... In economics, Say’s Law or Say’s Law of Markets is a principle attributed to French businessman and economist Jean-Baptiste Say (1767-1832) stating that there can be no demand without supply. ...
In economics, neutrality of money occurs whenever a change in the stock of money affects only nominal variables in the economy such as prices, wages and exchange rates. ... Nominal value is the value of anything expressed in money of the day, versus real value which removes the effect of inflation. ... In economics, the velocity of money refers to a key term in the quantity theory of money, which centers on the equation of exchange: where is the total amount of money in circulation in an economy at any one time (say, on average during a month). ...
^ Elgar, Edward., Rabin, Alan A. (2004), page 1 -- "Two approaches tackle the central questions of macroeconomics. One we call the spending approach. A second, the goods-against-goods (or Say’s Law) approach, goes further back to the fundamentals of production and the exchange of goods against goods."
Book References
Elgar, Edward., Rabin, Alan A. (2004). "Monetary Theory" MPG Books: London
Theories may survive because experience indicates that they possess a high degree of validity and because no better theories have been found.
A series of monetary crises in the 1820s and 1830s, however, convinced the Currency School that adjustment was far from smooth and that convertibility per se was by no means a guaranteed safeguard to overissue.
Underlying all these arguments were the presuppositions (1) that full employment is the dominant policy concern, (2) that the employment benefits of monetary stimuli exceed their inflationary costs, and (3) that disinflationary monetary policy, because entrenched inflation is so resistant to it, would produce intolerably large and protracted reductions in output and employment.
AN examination of monetarytheory is very much in order, because it is currently at the top of the academic economists' list of recession remedies.
This theory, that capital employs labor, that an increase in the supply of capital increases employment of laborers and also increases wages, is implicit in all the writings of the monetary men, such as Kissinger and Friedman.
Because the monetarytheory economists accept the wages fund theory, though they may not even be aware they are doing so, the whole structure of their thought rests on a fallacy - an inversion of cause and effect.
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