I have been discussing a multitude of issues including
quantitative easing, Ricardian Equivalence, and the current
state of monetary policy with Scott Sumner over the in comments
of his excellent blog and it has given me the inspiration to
provide a more thorough outline of my thinking. I think that the
best way to think about money is, as Leland Yeager might say, in
terms of monetary equilibrium. In other words, if we view money
as being just one other good in a Walrasian general equilibrium
model, then an excess demand (supply) of money is accompanied by
an excess supply (demand) of goods and services. Thus,
maintaining monetary equilibrium is essential to achieving
economic stability. What’s more, the particular problem with an
excess demand (or supply) of money is that money has no market
of its own. Or as Keynes would say, labor cannot be shifted away
from the production of goods where there is an excess supply to
the manufacture of money. Further, the fact that money does not
have a market of its own im