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Monday, 27 July 2015

THE MYSTERY OF THE MONEY SUPPLY DEFINITION

By Frank Shostak

According to mainstream economics, the validity of various definitions of money can be ascertained by means of a statistical test. What determines whether money M1, M2, and the other Ms are valid definitions is how well they correlate with national income. Most economists hold that, since the early 1980s, correlations between various definitions of money and national income have broken down. The reason for this break-down, it is held, is that financial deregulation has made the demand for money unstable. In short, the nature of financial markets has changed; consequently, past definitions of money no longer hold.