ABSTRACT
Beyond the simple truth of the quantity theory of money, Monetarism has many faces. As demonstrated in the previous chapter, the market process that translates boom into bust can be conceived as one that entails systematic misperceptions of the real wage rate in circumstances of unexpected price inflation. Alternatively, a direct real-cash-balance affected associated with an increase in the money supply may fully account for a real but temporary increase in output and incomes. A broad reading of Monetarism suggests that the market process may involve both aspects (real-wage-rate misperceptions and a direct real-cash-balance effect) while considerations of capital and interest govern the lag structure. With almost any interpretation, temporary changes in real magnitudes eventually give way to purely nominal changes in a sequences of phases that can be depicted in both our labor-based framework and our capital-based framework. After the boom-bust episode, MV still equals PQ – with Q determined once again by non-monetary considerations, V determined by the preferences of money holders in the context of given institutional considerations, and P standing in direct proportion to M.
