The New Monetary Economics Revisited

14 Pages Posted: 28 Mar 2013

Date Written: October 15, 2012


This article revisits the key conceptual aspects of the New Monetary Economics (NME) by examining the idea of “monetary separation” and objections raised against it. So long as a dominant role for base money in exchange exists, using it to provide the unit of account remains advantageous and is likely to outweigh any mooted benefits of separation. Recent quantitative analysis, however, shows the transaction demand for government base money to be falling, a development that can be expected to continue in the years ahead. The passage of time thus seems to be weakening the principal basis on which monetary separation has been criticized — namely, the superiority of base money in payments. That development fits into the history of money told by Austrian economists, which emphasises payment practices evolving over time in response to technological improvements and market forces.

Keywords: fiat currency, money supply, monetary policy, government policy, federal policy, U.S. currency

JEL Classification: B25, E00, E40, E42, E52, E63

Suggested Citation

Cronin, David C., The New Monetary Economics Revisited (October 15, 2012). Cato Journal, Vol. 32, No. 3, 2012, Available at SSRN:

David C. Cronin (Contact Author)

Yale University ( email )

New Haven, CT 06520
United States

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