Money in Market Clearing
AbstractMarket 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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Bibliographic InfoPaper provided by EconWPA in its series Macroeconomics with number 0410009.
Length: 21 pages
Date of creation: 25 Oct 2004
Date of revision:
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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Market clearing; neutrality of money; double coincidence; unemployment; instability; debt.;
Find related papers by JEL classification:
- B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
- C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
- C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
- D46 - Microeconomics - - Market Structure and Pricing - - - Value Theory
- D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
- D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
- D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
This paper has been announced in the following NEP Reports:
- NEP-MON-2004-11-07 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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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