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Neutral money: Historical fact or analytical artifact?

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Abstract

Long-run neutrality of money is an artifact of particular theoretical frameworks. We advance an alternative though not contradictory theoretical framework where monetary processes exert lasting real effects. Our framework holds without rejecting the classical equilibrium condition that nominal values are independent of economic realities because the two frameworks are non-commensurable. The real effects that we explore stem from the distribution of monetary injection among potential entrepreneurial experiments. The selected experiments influence the pattern of activity within society, which leads to changes in the standard given conditions of wants, knowledge, and expectations. These changes unravel into alternative paths of history.

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Notes

  1. On Cantilon’s work in general cf. Brewer (1992), von Hayek (1985 [1931]), Higgs (1891, 1892), Jevons (1881), Murphy (1987) and Spengler (1954a, b). For the discussion of his monetary thought see Bordo (1983). For the discussions that put Cantillon’s ideas on monetary process into historical context see von Hayek (1967 [1935], pp. 1 ff), Humphrey (1984, 1991) and Marget (1966a, b [1938–1942]).

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Correspondence to Richard E. Wagner.

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Bilo, S., Wagner, R.E. Neutral money: Historical fact or analytical artifact?. Rev Austrian Econ 28, 139–150 (2015). https://doi.org/10.1007/s11138-014-0271-y

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