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Neutral Money: Historical Fact or Analytical Artifact?

29 Pages Posted: 2 Sep 2012  

Simon Bilo

Allegheny College - Department of Economics

Richard E. Wagner

George Mason University - Department of Economics

Date Written: August 31, 2012

Abstract

Long-run neutrality of money is an artifact of a particular theoretical framework. We advance an alternative though not contradictory theoretical framework where monetary processes exert lasting real effects. Our framework holds without rejecting the classical equilibrium condition that nominal values are independent of economic realities because the two frameworks are non-commensurable. The real effects that we explore stem from the distribution of monetary injection among potential entrepreneurial experiments. The selected experiments influence the pattern of activity within society, which leads to changes in the standard given conditions of wants, knowledge, and expectations. These changes unravel into alternative paths of history.

Keywords: neutral money, Cantillon effects, business cycles, non-equilibrium modeling, kaleidics vs. equilibrium, learning by doing, money as commanding height

JEL Classification: B31, E32, E42, E52

Suggested Citation

Bilo, Simon and Wagner, Richard E., Neutral Money: Historical Fact or Analytical Artifact? (August 31, 2012). GMU Working Paper in Economics No. 12-37. Available at SSRN: https://ssrn.com/abstract=2139373 or http://dx.doi.org/10.2139/ssrn.2139373

Simon Bilo

Allegheny College - Department of Economics ( email )

520 N. Main Street
Meadville, PA 16335
United States

Richard E. Wagner (Contact Author)

George Mason University - Department of Economics ( email )

4400 University Drive
334 Enterprise Hall
Fairfax, VA 22030
United States
(703) 993-1132 (Phone)

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