An Austrian Theory of Money Velocity
32 Pages Posted: 14 Nov 2010
Date Written: November 11, 2010
This paper analyses the nature and the dynamics of money Velocity on the basis of its links to the standard monetary and credit aggregates. This inquiry reveals deep connections between Velocity and the real economy, which stem from the fundamental relation between the interest rate and the return of capital. My suggested perspective helps to reinterpret the meaning of the well-known equation of exchanges, and shows the relevance of Wicksell's "pure credit" model, which relates interest rates to the return of capital. This investigation has important implications for the Austrian theory: I will propose an Austrian Theory of Velocity, which has relevant consequences for the analysis of monetary phenomena such as fractional reserve banking and the endogeneity of money supply; my theory anyway preserves the value of the insights of the Austrian Business Cycle Theory. It is possible to give an original interpretation of the role of finance in order to obtain, in perspective, a brand new Austrian Theory of Finance.
Keywords: money, velocity, credit, theory of finance, Austrian economics
JEL Classification: E20, E41, E44
Suggested Citation: Suggested Citation