Money in Market Clearing
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.
|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.|
|Contact details of provider:|| Web page: http://econwpa.repec.org|
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- 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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