A synthesis of the neo-classical and the Keynes-Wicksell monetary growth theories

Abstract

The preceding two chapters have shown that the theoretical explanations in the framework of the neo-classical and the Keynes-Wicksell monetary growth theories lead to a number of widely different conclusions with regard to the influence of a change in the rate of monetary expansion on the equilibrium values of the real variables. This unsatisfactory result must be attributed to the models discussed and the suppositions concerned. Stein remarks in this context ‘Since equally “reasonable” assumptions yield qualitatively different results monetary growth theory is an “Uncertain Trumpet”: it cannot be used as a guide to policy’.¹ In his well-known, comprehensive article in the American Economic Review he says ‘… equally plausible models yield fundamentally different results’ and concludes, ‘The crucial question is: which is the correct monetary growth model’.²