ABSTRACT
In as much as the Austrian approach is skeptical of general equilibrium theory, it might seem strange to build an entire chapter around an equilibrium construct, in this case the concept of ‘monetary equilibrium’. The main theoretical use of the concept of monetary equilibrium will be as a foil for the parallel sets of consequences that follow when either of the two cases of monetary disequilibrium occurs. The Austrian tradition is rich with examples of this foil use of equilibrium constructs.1 The task in this chapter is to describe the concept of monetary equilibrium and explore the workings of an economy where that equilibrium is continually maintained. The following chapters use the monetary equilibrium benchmark as a foil for understanding the effects of inflation and deflation. Carrying out this task will also create the opportunity to compare the properties of the monetary equilibrium framework to those of Keynes, monetarism, and New Classical economics. We shall also discuss the relationship between monetary equilibrium and the Quantity Theory of Money and the various notions of money’s ‘neutrality’ that one finds in the macroeconomic literature.
