ABSTRACT
This chapter examines the problem of making an appeal for testing the monetary theory. The first part of this book has been entirely theoretical. Assumptions have been made-some less, some more realistic-and the implications of these assumptions have been worked out. The main testing problem in economics, as in astrophysics, is to develop hypotheses that are capable of being tested, to use the hypotheses in making predictions. It justifies the first basic assumption underlying the monetary theory of employment. A second step in the procedure for testing the monetary theory is to examine the actual developments of recent years to see if the chapter is consistent with the theory. If the theory of employment is valid, the effect of changes in aggregate demand on prices and production must be those indicated by the insensitive-price theory of economic adjustment, and the changes in aggregate demand must be consistent with the monetary theory of aggregate demand.
