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Money in Market Clearing

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Author Info

  • Mohammad Gani

    (Economic Science Institute, Dhaka, Bangladesh.)

Abstract

Market clearing is the central issue in macroeconomics. Two centuries of debate on Say’s Law indicates that the issue is not yet settled. This essay proposes that double coincidence is a necessary condition for market clearing, in addition to the equality of demand and supply at equilibrium prices. However, the literature does not recognize necessity of double coincidence. Jevons (1875) gave shape to the conventional wisdom on double coincidence. The idea is that it is peculiar to barter, and that money overcomes this inconvenience. This is a fallacy. It prevents the development of a theory of money as a necessary medium of indirect exchange. It hides the role of money in market clearing. By recognizing double coincidence as a necessary condition for any trade, and the role of money in market clearing, economics can become a much stronger and practically more useful science. Monetary reform can correct the perverse circulation of money and prevent involuntary unemployment, undue instability, and excess debt.

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File URL: http://128.118.178.162/eps/mac/papers/0410/0410009.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0410009.

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Length: 21 pages
Date of creation: 25 Oct 2004
Date of revision:
Handle: RePEc:wpa:wuwpma:0410009

Note: Type of Document - pdf; pages: 21. A fresh new monetary theory makes classical, Austrian, Keynesian, monetarist, and Lucasian models obsolete.
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Web page: http://128.118.178.162

Related research

Keywords: Market clearing; neutrality of money; double coincidence; unemployment; instability; debt.;

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  1. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
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