ABSTRACT
What is money? One of the problems with 'monetarism' was that money itself had never been properly defined. Milton Friedman (1969) basically argued that 'money is what money does'. In his view, what money (i.e. monetary growth) does is cause inflation and thus, we could simply define money as the sum of the monetary assets that best correlate ('explain') inflation (measured as the rate of increase of some price index e.g. the Retail Price Index in the UK). Clearly there are a number of problems with this approach (not least that correlation does not imply causality) and, to be fair, Friedman and Schwartz (1963), in their impressive monetary history of the US, did suggest that a monetary index of some sort might be more appropriate than a measure of money formed by simply adding together, or summing, various monetary components.
