Money, Income, and Monetary Policy

Money, Income, and Monetary Policy

Money, Income, and Monetary Policy

Money, Income, and Monetary Policy

Excerpt

As a medium of exchange, money is a fine thing. If we were deprived of it, we would revert to less efficient ways of making our living. Trade by barter, foregoing the use of money, would not be compatible with high standards of productivity. In our economy, money spent in some steady sequence of hiring productive factors and disposing of their output is one condition for maximizing economic welfare.

Unfortunately, the regulation of money has not been notably competent, and monetary disturbances have taken a heavy toll in economic instability. The monetary system that creates and retires money has a deplorable record for aggravating the ups and downs in our national level of employment and real income. Users of money--primarily business firms and consumer households--now and again have substituted money hoards for expenditures on other things and, wanting liquidity more, have wanted less the services of productive factors. At other times, spending has been substituted for hoarding, and the markets buoyed up for productive factors and for their output in short-lived bursts of national prosperity.

This mixture of good and evil in money and in the monetary system has been explained to college students in numerous textbooks. Yet the layman's insight into monetary matters is still myopic in the extreme. Perhaps some students, venturing for the first time into monetary analysis, may benefit from a text that differs from most in three respects. In the belief that students of money really can endure as much mental strain as, say, students of elementary logic, I have experimented here with methods of analysis that may be more rigorous than is customary. I have made intensive use of the monetary system's financial statements in describing money and in explaining how its supply changes. Finally, I have emphasized throughout that the economics of money is inseparable from the economics of all other scarce goods.

The first section of this book defines money and explains the design of the monetary system. It discusses the roles taken by the Treasury, the . . .

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