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Real Analysis in Classical, Neoclassical, Neoclassical Synthesis, Monetarist, New Classical, New Keynesian, and New Consensus Theories

In: Money, Distribution Conflict and Capital Accumulation

Author

Listed:
  • Eckhard Hein

Abstract

Classical orthodoxy since David Ricardo, Lord Overstone and Robert Torrens has assumed the long-run neutrality of money applying the quantity theory of money as proposed by David Hume. In the long run, when prices have adjusted to their equilibrium values, there is a proportional relationship between the quantity of money supplied and the level of prices, assuming that money does not consist of commodity money but of token (paper) money.2 In the short run, however, with fixed prices and given expectations, a change in the quantity of money supply affects output and employment. Therefore, the classical dichotomy between the real and the monetary sphere is a phenomenon of the long run. The neutrality hypothesis with respect to the effects of monetary policy is further on only related to real quantities. The existence and the use of money as a means of circulation are generally assumed to qualitatively improve the allocation efficiency of a market system by means of reducing transaction and information costs.

Suggested Citation

  • Eckhard Hein, 2008. "Real Analysis in Classical, Neoclassical, Neoclassical Synthesis, Monetarist, New Classical, New Keynesian, and New Consensus Theories," Palgrave Macmillan Books, in: Money, Distribution Conflict and Capital Accumulation, chapter 3, pages 9-12, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-59560-6_3
    DOI: 10.1057/9780230595606_3
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