ABSTRACT
This chapter examines the forces that determine the amount of money and the amount of liquidity in the economy, and whether the amount of money and liquidity is under the control of the monetary authorities. The monetary authorities are faced with a choice either of maintaining the existing structure of short-term rates, with the consequence that they relieve the shortage of money, or of maintaining the shortage and allowing short-term rates to rise. The monetary authorities have to take the amount and composition of government paper into account, not only because it affects the commercial banks, but because it is also important to these other institutions. Monetary control is never likely to be a precise instrument, since it depends on so many things—in particular, the whole fiscal and budgetary process and the attitudes of the public to saving and holding government debt.
