Understanding the Role of Money and Money Contracts in a Market Economy

Abstract

To deal with the uncertain future, all market transactions are organized using money denominated contracts. By entering into spot money contracts to buy and sell things immediately and forward money contracts to buy and sell things at future dates, decision makers know they can control with a legal certainty their net cash inflows and outflows. The Keynes theory insists that the sanctity of the money contract is the essence of the capitalist economy . Then the need for liquidity to meet any current or future contractual obligations affects people’s actions in the marketplace. The classical theory has no role for money contracts or liquidity.