Of particular importance for economic theory was the scientific substantiation in the works of A. Smith of the position on the spontaneous origin of money. A special section of his work “Research on the Nature and Causes of the Wealth of Nations” (in 1776) is devoted to the analysis of this issue, in which, based on broad factual material, the position is argued that the development of money is connected with the historical process of the social division of labor and the socialization of production. In accordance with this, Smith follows the concept that the progress of monetary relations is determined by the operation of objective economic laws. Legal norms and the monetary policy of the state must reflect the requirements of these laws and create a mechanism for their implementation.

Smith and Ricardo argued several important points regarding the definition of the commodity nature of money. In their opinion, money is a commodity that is no different from other goods. At the same time, their theoretical positions regarding the nature of paper money were of great scientific importance. In particular, Ricardo, pointing out that an essential condition for increasing national wealth is the stability of monetary circulation, which can only be achieved on the basis of the gold standard, simultaneously emphasized that the functioning of the latter does not necessarily involve the circulation of gold money. In order to reduce unproductive expenses, they can and should be replaced by paper money.

Another line in determining the nature of monetary relations: the essence of money was determined as a technical instrument for the circulation of goods. Representatives of the classical school paid attention only to the intermediary role of money, its function as a means of circulation. They ignored one of the main functions of money - its purpose in commodity circulation to serve as a universal value equivalent. “Gold and silver are the same household items as kitchen utensils” (A. Smith).

The idea that gold and silver perform monetary functions only as technical instruments of exchange was also shared by later representatives of the classical school. J.S. Mill argued that money is a special mechanism for quickly and conveniently accomplishing what could be done without it, although not so quickly and conveniently.

This deficiency in the interpretation of the functions of money was eliminated by K. Marx. The most significant thing in his theory is the definition of the essence of money as a universal value equivalent. Money began to be viewed as not just a commodity, but a special commodity that performs a specified function.

3. Modern theories of money.

Keynesian theory of money.

J. M. Keynes “Treatise on Monetary Reform” (1923), “Treatise on Money” (1930), “General Theory of Employment, Interest and Money” (1936).

All classical and neoclassical literature was based on the idea of ​​the neutrality of money in the economic system. The neoclassical concept of a market economy was essentially a model of a barter economy in which money performed mainly auxiliary functions. In contrast to this, Keynes put forward the position that money plays its own special, independent role in the reproduction process, acting as a source of entrepreneurial energy, an intermediary between current and future economic activities, production costs and its final results. Keynes believed that it is impossible to foresee the development of economic events, either in the short or long term, unless one takes into account what will happen to money during the corresponding period.

According to Keynesians, the velocity of money is volatile and unpredictable. It varies directly with the interest rate and inversely with the money supply.

Based on the thesis “money matters,” Keynes developed the theoretical concept of “regulated money,” which is based on a system of broad government regulation and use to stimulate effective effective demand, and, accordingly, the investment process. According to Keynes, money, on the one hand, is an object of state regulation of the economy, and on the other, a direct instrument for implementing such regulation.

Keynes became the founder of one of the areas of the theory of money - the theory of state monetary policy. The main postulates of this policy are directly embodied in the system of state regulation of economic processes in leading Western countries (especially the USA and Great Britain).

Particularly significant is Keynes’s position on the principles of implementing the policy of “cheap money” and preferential credit. He developed the concept of regulated pricing and controlled inflation. The central position of the theory: insufficiency of money demand is one of the determining reasons for the development of crisis processes, the decline in production and the growth of unemployment. Therefore, the money supply should be stimulated through the application of a policy of “cheap money” and the corresponding use of interest rates. Keynes’s commitment to the policy of “cheap money” became the reason that he began to be called a “born inflationist.” According to Keynes, inflation stimulates economic activity, acting as a means of weakening the position of the economically passive rentier layer - it reduces the rentier’s propensity to save.

At the same time, Keynes not only did not deny, but also defended a tough credit and emission policy in conditions of economic recovery. Thus, the policy of “regulated money” is flexible and adjusted in accordance with the development of the economic cycle.

Modern monetarism.

The ideas of monetarism, as one of the forms of the neoclassical direction of Western economic thought, originated in the 20s. XX century. As an integral system of economic views, monetarism was formed in the 60s. One of the most famous representatives of this theory is a professor at the University of Chicago, winner of the Nobel Prize in economics in 1976, M. Friedman.

Monetarism as an economic theory has ramifications, which gives rise to ambiguity regarding the definition of its main content.

In general (broad) application, monetarism is a theory that studies the influence of money and monetary policy on the state of the economy as a whole.

Monetarism in a narrow (more specific) definition is interpreted as a system of theoretical views, according to which regulation of the money supply is a determining factor in influencing the dynamics of monetary income.

Since monetarism has much in common with the quantity theory of money, it is considered to be a modern version of the latter.

Monetarism is a combination of two basic principles:

Money matters, i.e. changes in the monetary sphere have a decisive influence on the general economic situation.

Central banks are able to control the amount of money in circulation.

Unlike Keynesians, monetarism maintains that the velocity of money is stable. Factors that influence the velocity of money change gradually and are therefore predictable. Consequently, changes in the velocity of money circulation from year to year can be easily envisaged.

In the 80s the attractiveness of monetarism began to decline sharply. Some fundamental methodological postulates of monetarism were revised, and several movements emerged from its composition.

Neoclassical monetarists(Friedman) stand for absolute flexibility of the price mechanism and the corresponding effectiveness of monetary policy (the most radical group).

Monetarist-gradualists(Leider) believe that the elasticity of the price structure is insufficient. This slows down the reaction of the market mechanism to changes in the supply of money, creating a time lag between the implementation of monetary policy and the reaction of the economy. Therefore, the task is set of a stepwise reduction in inflation rates (policy of monetary gradualism).

Monetarists-pragmatists They believe that in the fight against inflation, financial instruments should also be used to contain income. We are talking about an organic combination of tight monetary policy with income policy (a position close to Keynesian).

In the structure of modern economic thought, there are two more movements that belong to the new conservatism: supply-side economics and the new classical school of rational expectations . The positions of these trends in determining practical recommendations for monetary policy largely coincide with the views of neo-Keynesians.

Early metalism arose during the period of initial accumulation of capital, the formation and development of capitalism in the 16th - 17th centuries. The birth of capitalism was associated with the decomposition of the natural-feudal economy and the development of markets. This theory appeared in the most developed capitalist country of that time - England. One of the founders of the metallic theory was W. Stafford (1554 - 1612).

The historical situation in which the metallic theory of money arose was characterized by the emergence of manufactures, the growth of commercial capital and the seizure by European states of the natural resources of overseas countries. Thus, the early metallic theory of money was characterized by the identification of the wealth of society with precious metals. Mercantilists recognized commodity essence of money, seeing their value in the natural properties of gold and silver, and therefore opposed the deterioration of coins, which often occurred at that time.

Early mercantilists(until the middle of the 16th century) the key function of money was considered to be the function of accumulation (formation of treasure). Their main theoretical positions were based on the idea of ​​an active "money balance", ensuring an abundance of gold and silver in the country based on a positive balance of foreign trade. Their policy was to carry out measures, firstly, to prevent the outflow of gold and silver from the country, and secondly, to stimulate the influx of gold and silver from abroad.

Late mercantilists(from the second half of the 16th century to the end of the 17th century) opposed the idea of ​​“money balance” to the idea of ​​“trade balance”, believing that in conditions of sufficiently developed and regular trade between states it is possible to allow the import of goods (subject to a positive balance) and the export of money for the purpose of profitable trade deals. They considered the key function of money to be that of a medium of circulation, primarily its use as a means of international trade.

Under these conditions, critics of the metallic theory of money appeared. Some critics argued that for internal circulation there is no need for full-fledged metal money; their functions can be performed by paper banknotes.

In the second half of the 19th century, German economists K. Knies, V. Lexis, A. Lansburg and others, without rejecting the possibility of circulating paper banknotes, put forward a requirement for their mandatory exchange for metal. Knis considered as money not only metal coins, but also banknotes of the issuing bank, which have a credit nature and are widely used in the economy. Recognizing banknotes, Knies opposed paper money that was not redeemable for metal.

After the First World War, supporters of metalism, recognizing the impossibility of restoring the gold coin standard, advocated maintaining the gold standard in its “reduced” form - gold bullion and gold exchange standards.

After World War II, some economists advocated the idea of ​​restoring the gold standard in domestic currency circulation. In the 60s of the 20th century, French economists A. Thulemon, J. Rueff and M. Debreu, as well as the English economist R. Harrod, came up with the idea of ​​reviving metallism (neometalism) in international circulation. Neo-metalists, unlike representatives of the old metallistic theory of money, did not deny the functioning of money in the form of irredeemable paper banknotes, but stood for a return to the gold standard with the free exchange of banknotes for gold.

Nominalistic theory of money

Nominalism can be found among ancient philosophers under the slave system, and then under feudalism. The first nominalists were adherents of defacement of coins. Having noticed the fact that worn-out coins circulate in the same way as full-fledged ones, they began to argue that it is not the metallic content of money that is important, but its denomination.

Nominalism was formed in the 17th-18th centuries, when monetary circulation was flooded with inferior coins. It was defective coins, and not paper money, that underlay the theory of early nominalism.

Nominalists view money as symbols and reject any connection with precious metals. Some experts argued that money is a creation of state power and therefore the state has the right to assign a “prescribed value” to money.

In the 18th century in England, nominalistic ideas were developed by the religious philosopher George Berkeley (1685-1753) and the prominent economist James Stuart (1712-1780). They viewed money as a conventional unit of account used to express exchange proportions as an ideal price scale. In their opinion, both metal and paper money are, in fact, simply "counting signs"

Nominalists proceeded from the following provisions: money is created by the state; the value of money is determined by what is written on it, its denomination (hence the name of the theory).

At the beginning of the 20th century, in connection with the collapse of the gold standard caused by the First World War, the nominalistic theory of money was further developed. The most prominent representative of nominalism during this period was the German economist G.F. Knapp (1842-1926), who published the famous book “The State Theory of Money” in 1905.

The main provisions of his theory are as follows:

Money is a “product of law and order,” a creation of state power, its purchasing power is determined by legislative acts of the state;

- “The essence of money lies not in the material of signs, but in the legal norms governing their use”;

The main function of money is to serve as a means of payment;

The state gives money the power of payment.

Nominalism played a large role in the economic policy of Germany, which made extensive use of money creation to finance the First World War. Knapp initially gained many supporters. However, during the period of hyperinflation in Germany, when 80 factories worked to produce rapidly depreciating paper money, practice itself revealed the inconsistency of the statement that “the state does not know the change in the value of money.” The hyperinflation of the 1920s in Germany put an end to the dominance of nominalism in bourgeois theories of money.

Quantity theory of money is an economic doctrine that explains the relationship between the amount of money in circulation, the level of commodity prices and the value of the money itself. Its essence lies in the assertion that the amount of money in circulation is the root cause of the proportional change in the level of commodity prices and the value of money. This provision was first applied to metallic money, and then to paper money.

The quantity theory of money arose in the 16th-18th centuries. Its founder is the French economist Jean Bodin (1530 - 1596), who tried to reveal the reasons "price revolution", linking the growth to the influx of precious metals into Europe. In the XVI - XVIII centuries. The world's gold and silver production is approximately 16 times greater than the supply of precious metals that Europe had in 1500. This is due to the export of gold from Mexico and South America.

These ideas in the 17th and 18th centuries are reflected in the works of the English philosophers J. Locke (1632-1704) and D. Hume (1711-1776), the French philosopher C. Montesquieu (1689-1755) and other thinkers.

The quantitative theory of money was further developed in the works of representatives of the classical school of political economy - D. Ricardo (1772-1823) and J. St. Millya.

However, the quantity theory of money also had its opponents. K. Marx criticized its main postulates, noting as one of the fundamental shortcomings of this theory the reduction of money only to the function of a medium of circulation while ignoring its function as a measure of value. He believed that the main error of the quantitative theory is rooted in the hypothesis that goods enter the circulation process without a price, and money without value.

In his opinion, money has value even before it comes into circulation, and depending on the value of money, on the one hand, and the value of goods, on the other hand, the prices of goods are set. Marx saw another flaw in the quantity theory of money in the erroneous initial premise that anything can come into circulation. arbitrarily set amount of money. Marx argued that the amount of money in circulation is determined by the action objective economic law, according to which the amount of full-fledged money that is necessary for circulation comes into circulation.

Transactional version of the quantity theory of money. The American economist, statistician and mathematician I. Fisher (1867-1947) denied labor value and proceeded from the “purchasing power of money.”

I. Fischer believed that the amount of commodity exchange transactions for a certain period can be expressed in two ways:

1. As the product of the amount of money (M) by the average velocity of its circulation (V);

2. As the product of the number of goods sold (Q) by their average price (P).

From this he derives the following exchange equation:

MV = PQ

Fischer believed that in this formula V And Q during the short-term period they are constant values, and therefore their influence can be excluded. Then there is only one dependency left: between M And R, which is the essence of the quantity theory of money. However, practice shows that the velocity of money circulation and the number of goods sold are far from constant values ​​and have a significant impact on money circulation, which cannot be neglected.

Cambridge version of the quantity theory of money. The founders of this concept are the English economists A. Marshall, A. Pigou, D. Robertson, who, unlike Fisher, focused not on the circulation of money, but on its accumulation by business entities (in connection with which this theory was also called the theory of cash balances ).

The principle of this option is expressed by the formula:

M = КPQ,

where M is the amount of money;

P - price level;

Q is the physical volume of goods included in the final product;

K is the share of annual income that participants in the turnover wish to store in the form of money.

Since K is the reciprocal of the velocity of money (K = 1/V), then substituting this value into the formula, we obtain the exchange equation of I. Fisher:

Those. MV = PQ.

Thus, there are no fundamental differences between the two versions of the quantity theory of money, there is simply a different way of writing the equation of exchange.

The fundamental errors of the quantity theory of money in general are the ignorance of such functions of money as a measure of value and treasure, and the denial of the law determining the amount of money in circulation.

In economics, there are two approaches to the study of theoretical problems of money. Representatives of one of them are looking for answers to questions related to the internal nature of money: what is money; why they appeared and exist in society; how they develop and why they acquired one form or another; what is the value of money and how is it formed, etc. This direction in the theory of money is characterized by increased attention to the internal aspects of the nature of money and underestimation of its external aspects, which are manifested in the influence of money on economic processes. This approach to studying the nature of money can be called abstract theory of money. The most famous manifestations of this approach are nominalistic theory, metallic theory, state theory, functional theory, Marxist theory, etc.

Representatives of the second direction accept money as it is, without delving into the study of its nature, they are looking for an answer to a question that is related to the place and role of money in the reproduced process. This approach to the scientific analysis of monetary problems can be called applied theory of money. In Western literature it is usually called monetary theory.

Monetary theory has several directions, which are considered as a separate theory. The key direction of monetary theory is quantitative theory which, in turn, depending on the stages of its development is divided into:

Classical quantity theory

Neoclassical quantity theory

Modern monetarism.

Simultaneously with the neoclassical direction of the quantitative theory of money, first the Keynesian and then the neo-Keynesian concept of monetary theory was formed as its relatively independent direction.

In the literature, the Keynesian concept of money is often contrasted with the neoclassical quantity theory and considered as two alternative theories. Both of them have a single methodological base. Thanks to their convergence at the present stage, the third direction of monetary theory is being formed - Keynesian-neoclassical synthesis.

Classical quantity theory money was formed back in the XVI-XVII centuries. and served as the methodological basis for all further development of monetary theory, including its modern directions. Its basic principles (postulates) throughout the centuries-long development of economic thought have only undergone some clarifications and additions, remaining fundamentally unchanged. They are also easily visible in complex modern monetary concepts, which give grounds to assert that modern monetary theory is essentially quantitative.

This theory received the name quantitative because its founders explained the influence of money on economic processes exclusively by quantitative factors, primarily by changes in the mass of money in circulation.

The defining feature of the quantitative theory is the proposition that the value of money and the level of commodity prices are determined by changes in the quantity of money: the more money there is in circulation, the higher the prices, and the lower the value of money, and vice versa. By influencing the prices of goods and services, the amount of money affects all other economic processes: growth in the nominal volume of GDP, national income, effective demand, etc.

The first to put forward the idea that the price level depends on the amount of precious metals was the French economist J. Bodin. In his treatise “Response to the Paradoxes of de Malestroy,” he comes to the conclusion that high prices, although predetermined by many reasons, the main one among them is the increase in the amount of gold and silver. Other economists of the XVI-XVII centuries. (B. Davanzatti, G. Montarini, D. Locke), developing this idea of ​​J. Bodin, gradually turned it into a straightforward and mechanical version of the quantitative theory, which was limited by two postulates: the reason for the rise in prices is the increase in the mass of money in circulation, and the measure of growth prices are determined by the measure of growth in the supply of money.

An important contribution to quantitative theory was made by the English economist J. Locke. He believed that the decisive factor that regulates and determines the value of money is its quantity. This conclusion of J. Locke was used by the ideologists of the industrial bourgeoisie to criticize mercantilism.

During the period of formation of capitalist relations, the main ideas of the quantitative theory were more clearly formulated and deepened by the English economist D. Hume. In the essay “On Money” (1752), he put forward and substantiated the principle, which in modern literature is called the “postulate of homogeneity”: doubling the amount of money leads to doubling the absolute level of all prices expressed in money, but does not affect the relative exchange ratios of individual goods. With his “postulate of homogeneity,” D. Hume gave impetus to the formation of the concepts of “neutrality of money” in a market economy and the exogenous, externally imposed nature of changes in the money supply in circulation, which became part of the arsenal of essential ideas of monetary theory in general.

With his study of the quantitative theory, D. Hume also made an important contribution to the development of the scientific understanding of the value of money. He put forward and substantiated the idea of ​​the representative nature of the value of money, according to which:

Money enters circulation without its own value, but acquires it in circulation as a result of the exchange of a certain mass of money for a certain mass of goods;

The value of money formed in circulation is determined by the cost of goods sold, is purely conditional, and its value depends on the amount of money in circulation: the greater it is, the smaller the mass of commodity value will be per one monetary unit.

Here D. Hume, in essence, joined the nominalistic theory of money, giving it greater reality, thereby strengthening the theoretical basis for the further development of the quantitative theory.

The role of the quantitative factor in its classical interpretation was recognized not only by representatives of the nominalist theory, but also by many of those researchers who took the position of the labor theory of value. The classics of political economy A. Smith and D. Ricardo, who laid the foundations of the labor theory of value and made a significant contribution to the substantiation of the objective, commodity nature of money, saw in money only a technical intermediary in the exchange of goods, only a convenient means of commodity circulation. They underestimated such important functions as a measure of value and a means of storing value. Therefore, it is entirely logical that they did not reject the postulates of the quantity theory of money.

The decisive role in the establishment of nominalistic ideas about the value of money as the methodological basis of modern monetary theory was played by the formation at the end of the 20th century. marginal utility theory, according to which the cost of goods and services is determined by the buyer’s subjective assessment of their value

The quantitative factor also played a certain role in K. Marx’s theory of money. He unequivocally recognized the dependence of commodity prices on the amount of money with inferior paper money. As for full-fledged money, K. Marx believed that there can only be a certain, objectively determined amount of it in circulation. If excess money appears in circulation, then it is automatically withdrawn into treasures, and if there is a shortage of money, then its mass is replenished from treasures, and prices remain unchanged.

Representatives of the quantitative theory for a long time (by the beginning of the 20th century) showed no interest in revealing the underlying mechanism of the influence of money on prices, and through them on the economy as a whole. They simply declared the fact of a directly proportional change in prices in the event of a change in the quantity of money, without revealing the mechanism of this process and remaining within the narrow circle of the mechanical connection between commodity prices and the money supply.

A certain stagnation in the development of quantitative theory during the second half of the XVIII-XIX centuries. provoked attempts to revise its basic principles.

This was also facilitated by objective processes that took place in the monetary sphere: strengthening the position of gold as a monetary commodity, the transition to gold monometallism, strengthening the requirements of the capitalist market for the stability of money, etc. A decisive attempt to refute the quantity theory of money was made by the outstanding representative of the “banking school” in England, T. Tooke. He recognized the multifactorial nature of pricing, but completely denied the dependence of prices on the amount of money. On the contrary, he believed that the amount of means of circulation depends on the price level, that is, changes in prices are the determining factor regarding changes in the mass of money. However, T. Tuck made the same methodological mistake as the representatives of the classical quantitative theory - he stated only the connection between prices and the mass of money, but did not reveal the mechanism of this connection. Moreover, by putting prices first, he moved even further away from understanding the mechanism of the influence of money on economic processes. From the same positions, representatives of Marxist economic theory criticized the quantitative theory.

A well-known representative of the classical quantitative theory already in the 20th century. was the American economist I. Fisher. He fully accepted the classical postulates of this theory and tried to mathematically prove their validity. In his work “The Purchasing Power of Money” he proposed the formula “equation of exchange”:

M * V = P * Q,

where M is the amount of money in circulation;

V is the speed of money turnover for a certain period;

P - average price level;

Q is the physical volume of goods and services sold during this period.

From the above formula it follows that P = M*V/Q, that is, the average price level is determined by three factors: the mass (quantity) of money, the speed of its turnover and the physical volume of the product produced. Nevertheless, I. Fischer himself did not draw such a conclusion from his formula. On the contrary, he used this equation to prove that the price level should rise or fall depending on changes in the quantity of money, unless the speed of their turnover or the quantity of corresponding goods changes at the same time, that is, to strengthen the dependence of prices on the quantity of money. He could not content himself with simply assuming the other two factors to be constant, since they actually change. Therefore, I. Fisher proves that the speed of money turnover changes in direct proportion to its mass and therefore only strengthens the quantitative factor. As for production volumes and trade turnover, he believed that they change very slowly. Therefore, their influence on prices can be abstracted, especially over long periods.

I. Fischer completely remained in the position of classical quantitative theory and is rightly considered one of its most orthodox representatives.

Neoclassical version of the quantity theory of money

« Opportunistic" version of M. I. Tugan-Baranovsky.

At the end of the 19th - beginning of the 20th century. Discussions around the quantity theory of money flared up with renewed vigor.

It became increasingly obvious that the old structure of the monetary economy, which was based on a gold basis, did not correspond to the new needs of social life and the narrowness of the old ideas about the essence and principles of functioning of the monetary mechanism, primarily the classical postulates of the quantitative theory, and the need to review them.

One of the first to understand the need and revise the basic theories of money, including the quantity theory, was the Ukrainian economist Tugan-Baranovsky. He most fully and substantiatedly outlined his views on basic monetary problems in his work “Paper Money and Metals,” which was published in 1916.

Tugan-Baranovsky paid a lot of attention to the quantitative theory of money. First, he criticized its classical version, which was outlined in the works of I. Fischer. Tugan-Baranovsky recognized the “equation of exchange” as the correct formula, however, he believed that Fisher did not introduce anything new into the quantitative theory of money, but only “successfully completed the work and gave an accurate and concise expression of the quantitative theory in mathematical form.”

Tugan-Baranovsky assessed the quantitative theory itself in its classical version negatively, because:

Its supporters, including I. Fisher, make prices (and the value of money) dependent on only one factor - the amount of money, and ignore other factors, even those defined in the "equation of exchange", - although they are just as objective and legitimate, like the amount of money;

Ignoring “non-quantitative” factors influencing prices predetermines the erroneous conclusion about the proportional dependence of prices on the amount of money, although in fact such proportionality is not confirmed either theoretically or practically.

Such criticism of the classical quantity theory did not at all mean the rejection of this theory as such. On the contrary, she pushed Tugan-Baranovsky to improve it, and he made an important contribution to its development.

Firstly, he proves, contrary to I. Fisher, that the price level is influenced not by one, but by all factors indicated in the “equation of exchange”: the number of goods that entered the market, the amount of money itself, the speed of its turnover, the number of credit instruments and the speed of their turnover. Since all these factors are influential and change in different directions, changes in prices and the quantity of money cannot be proportional. This conclusion had not only theoretical significance, but also practical value, as it expanded the scope of searches when studying phenomena such as inflation, monetary policy, tools for influencing the price level, etc.

Secondly, Tugan-Baranovsky proved that the influence of the quantity of money on prices is not as unambiguous and straightforward as is recognized by supporters of the classical quantity theory. This influence can be exercised not in one, but in three directions of different nature:

1) through changes in public demand for goods;

2) through a change in the discount percentage;

3) through a change in public perception of the value of money (later this factor was called inflation expectations).

Thirdly, Tugan-Baranovsky proved that the influence of the quantity of money on prices occurs differentially depending on the duration and volume of the increase in the quantity of money. Thus, short-term or minor increases in their quantity may not have a noticeable effect on prices and the value of money at all. And a significant increase in the amount of money exerts its influence on prices over a long period of time, and therefore it is carried out unevenly and disproportionately in relation to individual goods. By this, he, in essence, refuted the postulate of proportionality, proved that money is not a simple intermediary of exchange, and prepared the basis for abandoning the postulate of the neutrality of money.

Fourthly, Tugan-Baranovsky revealed the mechanism of interdependence between the total amount of money in the country, the amount of money that is out of circulation in savings, and the speed of money turnover, proved that the speed factor can influence prices in the opposite direction relative to the action of the quantity factor, neutralizing action of the latter.

All these ideas of Tugan-Baranovsky created the basis for studying the ways in which money influences the economy and the mechanism for consciously regulating this influence. With this, he laid the foundations of the so-called theory of regulated money, which prepared public thought for the abandonment of high-grade (gold) money and its replacement with inferior money, the value of which would be systematically supported by the state, and from which modern monetary theory, primarily its Keynesian direction, grew.

Tugan-Baranovsky significantly developed it in relation to new economic conditions. However, he called his views not the quantitative, but the opportunistic theory of money.

The essence of Tugan-Baranovsky’s opportunistic theory of money is that the general price level, and, consequently, the value of money, is connected not with the amount of money, but with the general conditions of the commodity-money market, or the general conditions of the commodity market. During the economic expansion phase, the general price level increases and the value of money decreases. And in the phase of economic recession, prices decrease and the value of money increases. These fluctuations in prices and the value of money in the economic cycle occur regardless of the amount of money.

The introduction of the demand for money into the field of scientific research meant a radical change in the direction of the quantitative theory itself. Instead of a purely macroeconomic analysis of the money-price relationship, she turned to the microeconomic aspects of the formation of demand for money, which gradually became a key object.

« Cambridge version." Some of the first researchers of the demand for money from a microeconomic position were Cambridge University professors A. Marshall, A. Pigou, D. Robertson, J. M. Keynes (in their early works). Their explanation of the mechanism of accumulation of money and the influence on prices was called the “cash balance theory”, or “Cambridge version”.

Like Fisher, representatives of the Cambridge school defended the thesis about the influence of changes in the supply of money on the price level. However, unlike I. Fischer, their approach to the problem was not macro-, but microeconomic, and concerned primarily the demand for money. Cambridge economists focused their attention on the motives for accumulating money among individual economic entities.

New approaches to solving problems of monetary theory have made it possible to formulate a new monetary indicator - a coefficient characterizing the part of total income that economic entities want to keep in monetary (liquid) form. In its meaning, this indicator is the opposite of the speed of money indicator and is defined as k=1/V. He is also known as "Marshall coefficient" characterizing the level of monetization of GDP.

The dependence of the accumulation of money by economic entities (demand for money) on the volume of the product produced and the level of development of their motives for the formation of cash balances was expressed by a formula called "Cambridge equation":

Мd=k * P *Y ,

where Md is the demand for money (cash balances);

k- coefficient expressing the part of annual income that entities retain in liquid form (Marshall coefficient);

P - average price level;

Y - production volume in physical terms.

In appearance, the formula of the “Cambridge equation” resembles the formula of the “equation of exchange” by I. Fisher. After all, if the coefficient k is replaced by 1/V and this indicator is transferred to the left side of the equation, then these formulas turn out to be similar. However, in essence, they differ significantly. After all, they have different M indicators: in the first formula (I. Fisher) it is the amount of money that actually serves the needs of commodity circulation, and in the second it is the value of the entire demand for money as cash balances. The indicator k and 1/V of these formulas do not coincide quantitatively, since the coefficient k in the “Cambridge equation” is determined by the entire stock of money, and the indicator in the formula of the “equation of exchange” is determined by the stock of money that serves the needs of turnover. Therefore, the dependence of prices on the quantity of money in the “Cambridge equation” is much more complicated than in the “equation of exchange.”

Subject and evolution of monetary theory

The doctrine of money is the most important section of economic theory. Analysis of the monetary sphere serves as one of the necessary prerequisites for constructing models of the functioning of economic systems. An important aspect of modern monetary theories is their “end product” - recommendations for economic policy measures.

The development of monetary theory is inextricably linked with the evolution of monetary systems, which predetermines key shifts in the topics and methodology of analysis. “The entire history of monetary doctrines shows that their emergence and struggle were determined, as a rule, by specific practical tasks, the answer to which required the development of economic relations. With its practical orientation and close connection with the most pressing current needs of the economy, monetary theory stands out among other political economic disciplines.”

Monetary theory in its systemic presentation is characterized by table. 6.1.

At certain stages of economic development, certain problems of monetary theory become more relevant and are put forward as leading ones.

Table 6.1. System of directions of monetary theory

Conceptual (essential) direction	Analytical direction (description and interpretation of phenomena)	Theoretical foresight (development of possible directions for the development of monetary relations)
Fundamental questions of directions
The economic essence of modern money, including electronic money (definitions and classification of types of money are analyzed) The role of money in the economic system Characteristic features of a money economy The relationship between money and credit The importance of money in macroeconomic balance	The mechanism of transition from commodity equivalents and metallic money to paper money Money multiplier effect Modeling of money circulation processes Methods of managing modern monetary systems The role of interest rates in regulating the money market Velocity of money circulation and its factors The relationship between the money supply and aggregate demand for goods The functioning of the world monetary system and the creation of regional currencies	Study of the directions of evolution of money Analysis of the degree of controllability of monetary processes Forecasting the impact of monetary processes on the real economy Assessment of money demand factors Development of methods for determining the optimal money supply The role of money in models of economic growth (optimal rates of long-term change in the money supply are analyzed) Justification for choosing the optimal exchange rate regime for a particular country

As an independent field of scientific knowledge, monetary theory was formed by the 18th century. and was initially intended to answer such fundamental questions as the interpretation of the essence of money, an assessment of the influence of money on the real economy and price dynamics, and the structure of the monetary economy. In the early stages of the development of monetary theory, the most significant scientific research was carried out by the following scientists.

The monetary concept of the Scottish economist J. Law substantiated in the essay “Money and Trade, Considered in Connection with the Proposal to Provide the Nation with Money” (1705). The main ideas of this work are the impact on the economy through the credit and financial sphere and government intervention in the economy. Money is seen as a means of eliminating the inconveniences of barter exchange; the properties of precious metals that determine their use in monetary circulation are investigated; the provisions of the doctrine of credit money are formulated, the issue of which was secured by the pledge of land. For banks, Law envisaged a policy of credit expansion, i.e. providing loans many times greater than the stock of metallic money stored in the bank. The concept found practical application in France in 1716 when creating a private bank with the right to issue notes of credit redeemable for gold. In 1718, the bank was transformed into the state-owned Royal Bank, but insufficient gold reserves, the lack of mechanisms to satisfy the demands of noteholders through the sale of mortgaged land, and the enormous scale of the issue led to its collapse.

Monetary concept of the Russian scientist I. T. Pososhkov set out in the work “The Book of Poverty and Wealth...” (1724), which examined the formation of a monetary system in which gold and silver perform the functions of a measure of value and a means of accumulation; a system of emission based on partial coverage with gold reserves and the possibility of issuing banknotes with a forced exchange rate established by the state were studied.

The monetary concept of the English economist D. Hume set out in the essay “On Money” (1752), where a principle called in modern literature the “postulate of homogeneity” was put forward and justified: doubling the amount of money leads to doubling the absolute level of prices expressed in money, but does not affect the relative exchange ratios between individual goods. Proportionality in changes in money and prices is achieved after a long process of economic transformations. D. Hume formulated one of the main monetary doctrines - the quantitative theory.

Analysis of the counting function of money by J. Stewart carried out in the work “Investigation of the Principles of Political Economy” (1767), where it was concluded that the counting function (function of a measure of value) can be performed not only by noble metals. This idea created the prerequisites for the development of monetary circulation. J. Stewart introduced the concept of symbolic money, which included banknotes, bills, bonds and other types of credit money. Credit money reflects the value of the things with which it is secured. An important conclusion was made about the dependence of the scale of credit emission on the money needs of industry and trade.

L. Smith's theory of money set out in the work “An Inquiry into the Nature and Causes of the Wealth of Nations” (1776), which substantiates the emergence of money as a result of the development of exchange based on the division of labor. A. Smith argued that money determines only the nominal price of things (goods), and the real value reflects the amount of labor spent on their creation. Analyzing the problems of gold monetary circulation, Smith pointed out the inadmissibility of issuing credit money in excess of metal reserves (fiduciary issue), since it leads to a drop in their value below the value of gold and silver. Only gold was recognized as full-fledged money, and credit money was considered signs of value - substitutes for full-fledged money.

Thus, the result of the 18th century. began the development of fundamental directions in the teaching of money. Until the beginning of the 20th century. directions of monetary theory were significantly influenced by the theoretical basis of the classical school of political economy, which assigned money a passive role among other market economic institutions. The analysis of money focused on two groups of problems: firstly, on the issues of the origin and essence of money, and secondly, on the issue of the formation of the value (later purchasing power) of the monetary unit. These aspects of the money economy were the most significant in conditions of free competition.

Monetary systems have gone through a long development path from commodity money to metal money, and then to the displacement of full-fledged metal money by paper money and credit instruments of circulation, therefore the further development of monetary theory takes place under the conditions of the transition to paper-credit monetary systems, which has become one of the conditions accompanying the transition to state-monopoly capitalism. The signs of this historical stage were:

• development of credit relations;
• creation of powerful central banks;
• development of non-cash money circulation;
• formation of a developed system of credit institutions and expansion of credit issuance capabilities;
• the ability of the monetary system to expand multiple times and quickly in order to avoid a liquidity crisis;
• changes in the structure of the money supply, a reduction in the share of cash and an increase in the share of money in deposit accounts.

In the theoretical views of economists, money has ceased to be associated with precious metals and has ceased to be seen as a technical instrument of exchange that saves labor and time on transactional transactions. In monetary theory, there was a transition from metallic and nominalistic concepts to the quantitative theory, whose representatives tried to establish the relationship between the amount of money and the parameters of economic development. The development of this scientific direction marked the formation of the “doctrine of money management”, reflected in the study of problems of monetary balance and monetarism.

The main result of the development of monetary theory in the 20th century. - money began to be seen as an important factor in the general process of reproduction, as an important element of the national economic structure and as an instrument of macroeconomic control.

As the evolution of the theory of money has shown, its most significant directions, uniting the views of different scientists, are five main theoretical concepts of money: metallic, nominalistic (the theory of paper money), neoclassical, quantitative and monetarism.

Metalistic theory of money

The metallic theory of money identifies money with precious metals - gold and silver. One of its first representatives was a French scientist of the 14th century. N. Orem. The theory was developed in the era of primitive accumulation of capital (XV-XVIII centuries), playing a progressive role in the fight against coin damage. In its most complete form, the metallic theory was formulated by the mercantilists, linking it with the doctrine of money as the wealth of the nation. The logic of the theoretical views of the mercantilists was as follows:

• profit is created in the sphere of circulation, and the wealth of the nation lies in money;
• State policy should be aimed at attracting gold and silver to the country. The goal is the accumulation of money in the country through the export of goods to the foreign market (active trade balance).

This idea of ​​the role of money reflects the views of merchants engaged in foreign trade. Some economists were supporters of the metallic theory: in England - W. Stafford, T. Men, D. Nore; in France - A. Montchretien; in Italy - F. Galiani.

The monetary system is characterized by the concept of monetary balance (W. Stafford), according to which the task of accumulating monetary wealth in the country was solved mainly by administrative measures that ensured strict regulation of money circulation and foreign trade. Monetarists, viewing gold as a treasure and an absolute form of wealth, looked for ways to bring it in from abroad and retain it within the country. The export of money outside the state was strictly prohibited, the activities of foreign merchants were strictly controlled, the import of foreign goods was limited, high duties were established, etc.

Representatives of the developed world have largely overcome the illusions of the early monetarists. Their economic theory is more sound. Instead of administrative methods of accumulation, the importance of which has fallen, economic methods are coming to the fore. The mercantilists abandoned the ban on the export of gold outside the country and the strict regulation of monetary circulation. They outlined measures to stimulate foreign trade, which should ensure a constant flow of gold into the country. The basic rule of foreign trade was that exports exceed imports; In order to realize it, the mercantilists cared about the development of manufacturing production, domestic trade, the growth of not only exports, but also imports of goods, the purchase of raw materials abroad, and the rational use of money. The growth of manufacturing production and the intensification of economic methods of accumulation will not exclude administrative influence from the state, although the nature of such influence has changed. In accordance with the concept of the balance of trade, an economic policy of protectionism was pursued in the interests of its own manufacturers and merchants; a ban on the export of raw materials was maintained, the import of a number of goods, especially luxury goods, was limited, high import duties were established, etc. The mercantilists demanded that the royal government encourage the development of national industry and trade, the production of goods for export, maintain high customs duties, build and strengthen the fleet, and expand external expansion.

Mercantilism in individual countries had its own characteristics. Its development is associated with the level of maturity of capitalist production relations, which also determined the practical results of national mercantilist theories. Mercantilism reached its greatest development in England. Its early stage was represented by W. Stafford, author of the book “A Critical Statement of Some of the Complaints of Our Countrymen” (1581). Developing the concept of monetarism, Stafford expressed concern about the flow of money abroad. He proposed solving the problem of accumulating monetary wealth mainly through administrative measures, demanding that the state prohibit the export of coins, the import of luxury goods, and limit the import of a number of goods. Stafford spoke in favor of expanding the processing of English wool and the production of cloth.

Mature mercantilism is represented in England by the works of Thomas Men (1571 - 1641). A classic representative of the manufacturing system, T. Men was at the same time a major businessman of his time, one of the directors of the East India Company. Defending the interests of the company from the attacks of opponents who criticized it for the export of coins, T. Men in 1621 published a pamphlet “Discourse on the trade of England with the East Indies,” where he contrasted the theory of the balance of trade with the concept of the monetarists. In 1630, T. Men wrote the work “The Wealth of England in Foreign Trade, or the Balance of Foreign Trade as a Regulator of Wealth” - his main work, the title of which formulates the credo of developed mercantilism. T. Men considered strict regulation of monetary circulation harmful and advocated the free export of coins, without which the normal development of foreign trade is impossible.

The ideas of mercantilism became widespread in France in the 16th-17th centuries. The representative of mercantilism here is primarily Antoine Montchretien (1576-1621), author of the famous “Treatise of Political Economy” (1615). He considered merchants to be the most useful class, and characterized trade as the main purpose of crafts. Montchretien was looking for ways to increase monetary wealth, which he recommended to Louis XIII; he considered active state intervention in the economy as the most important factor in the accumulation, strengthening and development of the country's economy. A. Montchretien advised developing manufactories, creating craft schools, improving the quality of products and expanding trade in nationally produced goods, displacing foreign merchants from the French market, whom he compared to a pump pumping wealth out of the country. A. Montchretien's program provided for the expansion of France's foreign trade expansion, partly reflecting the ideas of monetarism, as well as the concept of the trade balance, which was close to the author.

The wrong idea of ​​mercantilism was the identification of money with goods, a misunderstanding of the essence of money as a special kind of commodity that performs the social function of a universal equivalent. Modern researchers believe that the fallacy of the theory of early metalism was that:

• gold and silver were considered the source of social wealth, and not the totality of material wealth created by labor;
• the necessity and expediency of replacing metallic money in circulation with paper tokens of value was denied.

With the completion of the initial accumulation of capital, foreign trade ceased to be the main source of enrichment. The ideologists of the emerging industrial bourgeoisie began to contrast functioning capital with treasures in the form of gold and silver, criticizing the ideas of the metallic theory of money.

In the 19th century adherents of the metallic theory of money, German economists K. Knies, V. Lexis, A. Lansburg and others no longer rejected the possibility of circulating paper notes, but demanded their mandatory exchange for metal. The principles of the metallic theory of money were used to justify monetary reforms aimed at preventing inflation.

The new development of metallism occurred in the second half of the 19th century, which was associated with the introduction of the gold standard system in most countries. The most famous supporters of this trend and the introduction of metallic money circulation are W. Jevons, J. Mill, K. Marx, A. Wagner, A. Marshall. The leading Russian proponents of the theory of metallism were A. Ya. Antonovich, V. P. Bezobrazov, N. X. Bunge, I. Ya. Gorlov, P. P. Migulin, L. V. Fedorovich. Summarized, the results of research in this direction are as follows:

• gold as the basis of the monetary system is necessary for the measurement of goods, since only gold is a measure of value;
• the value of money and the price level are proportionally related;
• exchanging banknotes for gold is a means of regulating the amount of money in circulation. The irredeemability of banknotes creates conditions for excessive emission;
• To ensure the elasticity of money supply, a supply of monetary metal is required that exceeds the need for money as a medium of circulation.

After the First World War, supporters of this monetary theory were forced to admit the impossibility of restoring the gold coin standard and tried to use the metallic theory of money to justify the gold bullion and gold exchange standard.

After World War II 1939-1945 Some economists defended the idea of ​​restoration in domestic monetary circulation. In the 60s of the XX century. metalism was revived in France in the form of neo-metallism in relation to the sphere of international monetary relations (A. Toulemon, J. Rueff). With the abolition of the provisions of the Bretton Woods currency system in the early 70s of the XX century. supporters of this theory tried to justify the need to restore the role of gold. It is noteworthy that in the USA in 1981 a special commission was created on this problem, which considered the introduction of the gold standard inappropriate.

Neoclassical theory of money

Neoclassical theory developed in the last third of the 19th century. Its main representatives are the bourgeois economists A. Marshall, W. Jevons, L. Walras, A. Pigou, I. Fisher. The neoclassical theory of money is an integral part of the neoclassical concept of reproduction, the distinctive feature of which was the idea of ​​​​automatically ensuring “full employment” of production resources and labor through the action of the mechanism of free competition and pricing, which, according to the assumption of the representatives of this theory, is capable of guaranteeing balance in the economy and preventing crises of overproduction .

The main purpose of money in the neoclassical model was to determine the price level. The quantity theory of money was organically woven into the system of neoclassical views, proclaiming a direct connection between the amount of money in circulation and the level of commodity prices.

The basis of the research, along with the equations of quantitative theory, were the general equilibrium models of the Swiss economist Leon Walras (1834-1910). An important feature of equilibrium models was their constant balance, and the basis was the so-called Walras law, which determines the equilibrium conditions in a model where there is a monetary sector. The law stated that the total amount of excess demand in all markets, including the money market, is always equal to zero, since if, at a certain set of relative prices, an excess supply of goods is found in some markets, then in others there is necessarily an excess demand of exactly the same amount. Thus, the system as a whole is in equilibrium. If we use prices expressed in money to estimate the amount of excess supply and demand and assume that there is (a) market, then Walras’s law is expressed by the following identity:

A prerequisite for achieving market equilibrium is the prerequisite for absolute price flexibility and their rapid response to changes in market demand. One of the essential features of Walrasian equilibrium models is the so-called classical dichotomy, which isolates the monetary sector from other sectors of the economic system. Such a bifurcation of the pricing process represents a far-fetched abstraction: in reality, the process of formation of market prices does not break down into two stages or two stages. From the very beginning, money is involved in it, opposing the aggregate commodity mass.

The main postulates of the neoclassical and subsequently the quantitative theory of money were formalized by the American economist and statistician I. Fisher (1867-1947). He was one of the first to analyze the mutual relationship between the following indicators:

• the amount of money in circulation;
• real volume of goods production;
• price level.

Analysis of the relationship between these indicators (economic variables) allowed him to derive a formula known as the equation of exchange (equationofexchange). This equation connects the static amount of money in an economic system with its other parameters (price level, level of real production or circulating goods, velocity of money circulation). The transactional version of I. Fisher’s quantitative theory is based on the dual expression of commodity exchange transactions:

as the product of the mass of means of payment and the speed of their circulation (the left side of the equation);

as the product of the price level and the number of goods sold (the right side of the equation).

The exchange equation had the following form:

The elementary event that underlies the formula is a commodity exchange transaction (transaction). Subsequently, the Fisher formula was complicated by dividing the means of payment involved in commodity exchange transactions. Deposit money in the form of cash balances in checking accounts was included in the formula as a separate term:

• M"- the amount of money in checking accounts;
• V"— speed of circulation of funds in checking accounts;
• R— weighted average price level;
• Q- the sum of all goods sold in a given period.

The velocity of circulation in this equation is interpreted as the ratio of the nominal national product to the mass of money in circulation. In its pure form, “...the velocity of circulation of money (velocityofmoney) - This is an indicator of the intensity of movement of banknotes when functioning as a medium of circulation and a means of payment. Speed ​​is expressed by the number of revolutions of a monetary unit of the same name or the duration of one revolution, calculated on the basis of the ratio of turnover to the balance of money in circulation.” Thus, the velocity of money circulation is considered as the speed with which a unit of the nominal stock of money circulates in circulation.

I. Fisher's equation traces certain cause-and-effect relationships: the amount of money in circulation acts as a cause, and the price level as a consequence. Moreover, this cause-and-effect relationship was interpreted as strictly proportional. This situation is defined (according to Fisher) as inflation of the money supply. Thus, from the considered equation of I. Fisher it follows that the balance between the money supply (taking into account the velocity of circulation) and its commodity coverage is ensured through price changes.

The analysis of the equation of exchange excluded the influence of factors of the speed of money circulation and sales volumes. In the short term, I. Fischer considered them as constant. It was assumed that in the long term, the volume of production is determined by technical and economic conditions, as well as infrastructure with the specifics of connections between producers and consumers, changes in the nature of needs and other factors. Based on the analysis of statistical indicators, I. Fischer stated that these factors change relatively slowly, therefore, their influence can be abstracted.

The influence of the monetary sphere on the state of the real sector of the economy was also denied. In particular, examining the theoretical premises of the equation, V. M. Usoskin notes: “Fisher excluded the possibility of any reverse influence of the total amount of transactions on the “money” part of the exchange equation. ...The arbitrariness of such an assumption is obvious: in the real conditions of capitalist production, changes in the price level and, accordingly, the amount of commodity exchange transactions, undoubtedly affect the need for means of payment and, accordingly, the size of money emission. Fisher, on the other hand, absolutized the unidirectional line of influence “money - prices” and thereby consolidated the traditional gap between monetary and general economic theory.”

Another version of the quantitative doctrine - the Cambridge one - was developed by English economists, researchers and propagandists, professors at the University of Cambridge A. Marshall, A. Pigou, D. Robertson. The specificity of this approach was the attachment of special importance to the function of accumulating money: the existence of so-called cash balances (cash and cash balances in current accounts). Attention was focused on the motives of various entities (enterprises, individuals) that stimulate the accumulation of a certain amount of income in liquid form. The characteristics of the Cambridge school played a significant role in the development of monetary analysis.

If I. Fisher’s approach was macroeconomic, aimed at considering economic turnover as a whole in conjunction with money supply flows, then the Cambridge approach (cashbalancetheory) based on the analysis of microeconomic factors in the accumulation of cash balances in the economy. Two main factors in the accumulation of money were studied - as a means of circulation and as a reserve to cover unforeseen needs. In a form comparable to the equation of I. Fisher, the formula of the Cambridge school was presented as follows:

- the share of annual income that it is desirable to have in cash, or the monetization coefficient.

Obviously, it is the reciprocal of the money turnover rate. The monetization coefficient and the physical volume of production were considered as constant values, therefore, at first glance, there are no fundamental differences between the I. Fisher equation and the Cambridge equation, but the Cambridge approach is based on the idea of ​​​​the utility of money itself.

It should also be emphasized that in the above Cambridge equation it reflects the monetary amount of income equivalent to the final product, while in Fisher it is the total amount of transactions, including intermediate stages of production and circulation, financial transactions, etc.

The Fisher equation (Chicago version) and the Cambridge equation belong to the so-called rough version of the quantity theory of money. In most studies, one of the main disadvantages of variants of the quantity theory is the assumption of a constant velocity of money.

Neoclassical economists focused on the influence of prices and nominal income on the behavior of the banking system. They believed that there was a mechanism by which an increase in business activity induces banks to reduce their cash reserves relative to deposits, since an increase in business activity leads to an expansion of bank lending and deposits, and a decrease in activity leads to the opposite result. This connection between economic conditions and the money supply meant that the banking system contributed to increased fluctuations in economic activity. The expansion of production causes an increase in the money supply, which, according to the Fisher equation, has an inverse effect on business activity.

In the 20-30s of the XX century. The neoclassical theory was replaced by the Keynesian theory of money and monetary regulation.

Main problems 3.

What is the classical theory of money demand? 4.

How is the price level set in the classical model? 5.

How are interest rates determined in the classical model? 1.

Why did classical economists believe that full-employment output represents the goods and services that firms and workers produce and consume? 2.

Under what conditions do classical economists believe that output in an economy will be below the level of production at full employment?

Henry Ward Beecher (1813-1887) wrote in Proverbs from Plymouth Pulpit: “Money is like snow. If snow drifts form on the roads, then no one can pass. However, if the snow lies evenly on the ground, then it is not at all difficult to walk along the road.” What he meant by this was that increasing the money supply up to a certain point improves the functioning of the economy, but too much money can be harmful. Of course, the pragmatic view, shared by many economists, is that too much money in an economy can cause inflation, while too little can lead to a decline in economic activity. But determining the optimal money supply is very difficult, as the remaining chapters of this book show.

Successful monetary policy requires at least two elements: 1.

Theoretical justification, or economic model. The first major step in determining the optimal money supply is to understand the process by which gross national product, employment levels, government spending, and prices are determined. In addition, it is necessary to know how these economic variables are interdependent. 2.

A theory that explains how changes in the current money supply (the money supply in current year dollars excluding price changes) affect these economic variables.

Prologue to Part V

As you will learn in the chapters in Part V, economists have not always agreed on the role that money plays or should play in the economy. They still have not reached a consensus on this issue. At the same time, several theoretical models of the economy were developed.

CLASSICAL MODEL

The classical model was the first systematic attempt to explain the determinants of such important macroeconomic, or aggregate, variables as the price level, gross national product, employment and spending. Using the classical model, they also tried to explain the relationship between these variables and the role of money.

Classical economics was the main theoretical school from the 1770s until the 1930s. The circle of adherents of this school includes such minds as Adam Smith (1723-1790), David Hume (1711-1776), David Ricardo (1772-1823), James Mill (1773-1836) and his son John Stuart Mill (1806-1776). 1873), Thomas Malthus (1766-1834), Karl Marx (1818-1883), as well as A.

S. Pigou (1877-1959) and other neoclassical economists of a later period - L. Walras (1834-1910), A. Marshall (1842-1924) and K. Wicksell (1851-1926). Even N. Copernicus (1473-1543), being an astronomer, contributed to the classical model, and there is every reason to believe that T. Malthus influenced the doctrine of evolution of Charles Darwin. The classical model, as shown in this chapter, is a combination of Cambridge School macroeconomics and the revised theory of John Maynard Keynes, which we will consider later.

Generally, classical economists believed that capitalism was a self-regulating economic system. They argued that the self-regulatory mechanism inherent in the capitalist system would automatically lead to the full utilization of economic resources such as household labor. Classical economists recognized that temporary unemployment may exist in the form of frictional unemployment, when workers are looking for work, but over time, involuntary unemployment will disappear. Workers will experience widespread unemployment, that is, when there is a surplus of labor in the labor market. Gradually, this will lead to a decrease in wages, and unemployment will disappear as firms hire more labor and workers offer fewer services.

As a result, workers and firms will produce goods and services at full employment. Households will be able to purchase these goods and services. When firms provide goods, income for their purchase will automatically appear in the form of wages, rent, interest and profit. If households save too much—there is a savings glut—interest rates will fall, thus prompting households to reduce saving and companies to increase investment. The general conclusion of the classical theory that workers and firms will produce goods and services that households will buy can be represented as the formula: “supply of goods creates demand.”

Naturally, this point of view left virtually no room for government intervention in the economy. Since a capitalist economy reaches equilibrium at full employment output, monetary policy cannot influence output. Therefore, there is a neutrality of money. This means that money does not affect economic activity. A change in the money supply will affect the amount of expected household transactions, but will not affect output at full employment. Only prices can be adjusted accordingly. Consequently, as classical theory states, an increase in the money supply leads to a proportional increase in the price level. Due to a decrease in the money supply, in their opinion, there is a proportional decrease in the price level.

Classical economists recognized that this theory was only an economic model. They recognized that various institutional factors in practice, such as short-term limitations on households' ability to obtain and analyze information, legal minimum wages, long-term labor contracts, and the existence of trade unions in some industries, could hinder the elasticity of wages, prices and interest rates adopted as a prerequisite for this model. However, they believed that the existence of such institutional factors had little impact on the basis of their theory for modeling the economy.

KEYNESIAN REVOLUTION AND THE NEW SCHOOL OF ECONOMICS

The Great Depression of the 1930s showed the almost complete uselessness of classical theory in practice. The general level of prices and wages fell significantly during the crisis, but so did output and employment levels. Real national income fell by 25% between 1929 and 1933, and unemployment reached 17% of the working population during the worst periods of the crisis. Post-Depression economists, led by the great economist John Maynard Keynes, attempted to found a new school of economic thought that studied the functioning of the economy and the role of monetary policy in affecting the size of the gross national product, employment, spending, and prices.

In accordance with the provisions of the new school, the capitalist economy is not self-regulating. Instead, as J.M. Keynes and his followers believed, the capitalist economy is experiencing problems associated with insufficient elasticity of prices and wages and imperfect information available to firms and workers. Therefore, the economy is unlikely to reach full employment levels of output. Solving these problems requires the active intervention of the state, its stabilizing actions that guarantee the achievement of full employment. The extreme expression of this new economic school was that it turned the classical formula upside down. She argued that “demand for goods creates supply.”

It is hardly wrong to say that economic policy in the post-World War II period, especially from the early 1960s to the late 1970s, was largely a social experiment in demand management. This experiment consisted of using budgetary and monetary instruments to achieve the optimal level of expected spending in the economy and tested the correctness of the provisions of the new school developed by J. M. Keynes and his followers. Among the latter were Nobel laureates Paul Samuelson, James Tobin, Franco Modigliani and Robert Solow. How successful this experiment was is a topic of debate.

THE PROBLEM OF SG&GFTTS№№t RETHINKING THE PROVISIONS OF KEYNESIANism

Events since the mid-1970s have cast doubt on the theory of J.M. Keynes and his followers. In particular, stagflation has become a rather unpleasant problem, i.e. the simultaneous presence of high levels of inflation and unemployment. Keynesianism did not foresee such a problem.

and, naturally, it seemed an unsuitable theory for finding its solution. Therefore, the stagflation problem of the 1970s may have had as much of a negative impact on postwar economics as the Great Depression had on the classical model.

In the 1970s and 80s, heated debates unfolded among economists about the optimal model of the economy (optimal in the sense of the most accurately predictable) and the theory in which monetary policy would occupy its rightful place. Although several specific theories have been created, most economists in the 1990s fall into two main groups. The first attempts to restore essential elements of the original classical model, supplementing them with some Keynesian tenets that they considered useful. The core of this group is called supporters of the new classical macroeconomics. They continue the tradition of classical economists, arguing that the premise of elasticity of prices, wages and interest rates is the basis for the optimal model of the economy and the analysis of the role of money in it.

Neoclassical economists share the prevailing view in post-war economics that information limitations sometimes impede the process of self-regulation of the economy. However, they do not consider this a significant obstacle to achieving full employment output. Nor do they accept the view that systematic, i.e., predictable, changes in monetary policy affect economic activity. Their main argument is that the individual acts rationally, based on his own interests, thereby attempting to achieve full employment without the need for government intervention. The most uncompromising expression of this view, known as real business cycle theory, implies that monetary policy is always neutral and that “supply creates demand,” just as in the original classical model.