June, 2015

Neutral Money: Historical Fact or Analytical Artifact?

  • Richard Wagner

    Distinguished Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics and Economics
  • Simon Bilo

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Find the paper at SpringerLink

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.