Finance in a Theory of Money

22 Pages Posted: 30 Dec 2021 Last revised: 19 Apr 2022

Date Written: April 17, 2022

Abstract

Orthodox monetary theory is kneecapped by an overly concrete conception of money, which has led in recent decades to a reaction of moneyless models of monetary policy. By contrast, this paper generalizes monetary theory in terms of the plans of economic agents to hold and dispose of liquidity in a much wider variety of forms than is usually taken account of. We argue that (1) a Divisia index is closer to the subjectivist theoretical meaning of the money supply than are the standard monetary aggregates of M0-M2, (2) a broader perspective on liquidity services suggests a coordinationist perspective on both financial development and business cycles where buffer stocks of real goods play a central role, (3) the supply of liquidity is best conceived of in network terms, and (4) the observation that global liquidity is a better predictor of domestic inflation than is domestic liquidity, can be explained as an artifact of the failure of simple-sum monetary aggregates to track the actual role of liquid assets in spending plans.

Keywords: Money, Liquidity, Business cycles, Divisia, International economics, Finance

JEL Classification: E51, D85, F44, G23

Suggested Citation

Harwick, Cameron, Finance in a Theory of Money (April 17, 2022). Available at SSRN: https://ssrn.com/abstract=3995696 or http://dx.doi.org/10.2139/ssrn.3995696

Cameron Harwick (Contact Author)

SUNY College at Brockport ( email )

Brockport, NY 14420
United States

HOME PAGE: http://cameronharwick.com

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