Monetarism in a World without ‘Money’

  • Thomas Mayer


The central component of monetarism, the quantity theory, has the appealing simplicity that characterises powerful theories. But its very simplicity invites the charge that its domain is highly constricted, that it applies only to a world in which there are just two types of assets: exogenously given currency and chequeable deposits on the one hand, and relatively illiquid assets on the other. Hence, the argument runs, while the quantity theory may be a useful guide for economic historians, it is not applicable to the modern world with its evergrowing multitude of money substitutes. What the monetarists call ‘money’, that is, a medium of exchange without close substitutes, does not exist any more. Further, with the complexity of our financial system increasing all the time, the quantity theory, and hence monetarism are becoming more and more outdated. Our complex financial system requires a complex theory that treats ‘moneyness’ as a continuum, and does not separate out a particular asset that is allegedly ‘money’.


Interest Rate Monetary Policy Central Bank Federal Reserve Money Supply 
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© Stephen F. Frowen 1993

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  • Thomas Mayer

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