Introduction

Abstract

Money and financial issues have been studied for several centuries and have played a central role in general discussions about the functioning of economies. Nevertheless, there exists among economists, and will probably continue to exist, a fierce debate over monetary relationships. Monetarists placed money as a central determinant of economic activity, at least in the short run, while Keynesians had already rejected the classical neutrality axiom of money in both the short and long run. Today, new Keynesians reject the classical dichotomy that has been revived in, for example, real business cycle theory.

It is not any scarcity of gold and silver, but the difficulty which such people find in borrowing, and which their creditors find in getting payment, that occasions the general complaint of scarcity of money.

(A. Smith, 1776, Book IV.I)

The theory which I desiderate would deal … with an economy in which money plays a part of its own and affects motives and decisions, and is, in short, one of the operative factors in the situation.

(J.M. Keynes, 1973, pp. 408–9)