Table Of ContentEconometric Society Monographs in Pure Theory
Money and value
Econometric Society Publication No. 5
Books in both the Econometric Society Monographs in Pure
Theory and the Econometric Society Monographs in Quanti-
tative Economics are numbered in a single sequence for the
purposes of the Econometric Society.
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Econometric Society Monographs in Pure Theory
Edited by
Frank Hahn, Cambridge University
Editorial Adviser:
Hugo Sonnenschein, Princeton University
The Econometric Society is an international society for the advance-
ment of economic theory in relation to statistics and mathematics.
The Econometric Society Monograph Series in Pure Theory is de-
signed to promote the publication of original research contributions
of high quality in mathematical economics.
First book in the series
Gerard Debreu Mathematical economics:
Twenty papers of Gerard Debreu
This book is published as part of the joint publishing agreement es-
tablished in 1977 between the Fondation de la Maison des Sciences
de THomme and the Press Syndicate of the University of Cambridge.
Titles published under this arrangement may appear in any European
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Money and value
A reconsideration of
classical and neoclassical monetary theories
JEAN-MICHEL GRANDMONT
Centre d'Etudes Prospectives d' Economie Mathematique
Appliquees a la Planification
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Henry VIII in 1534.
The University has printed
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CAMBRIDGE UNIVERSITY PRESS
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EDITIONS DE LA MAISON DES SCIENCES
DE L'HOMME
Paris
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Published in the United States of America by Cambridge University Press, New York
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© Maison des Sciences de l'Homme and Cambridge University Press 1983
This publication is in copyright. Subject to statutory exception
and to the provisions of relevant collective licensing agreements,
no reproduction of any part may take place without
the written permission of Cambridge University Press.
First published 1983
First paperback edition 1985
Reprinted 1986, 1988, 1991, 1999
A catalogue record for this publication is available from the British Library
Library of Congress Cataloguing in Publication data
Grandmont, Jean-Michel.
Money and value.
(Econometric Society monographs in pure theory;
no. 5)
Bibliography: p.
Includes index.
1. Money I. Title II. Series.
HG221.G735 1983 332.4 82-14763
ISBN-10 0-521-25141-9 hardback
ISBN-10 0-521-31364-3 paperback
Transferred to digital printing 2005
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To Paulette and Jean
To Celine and Juliette
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Contents
Preface page xi
Introduction 1
1 Expectations and the real balance effect 8
1.1 Classical and neoclassical views on money 10
1.2 Structure of the model 14
1.3 Short-run demand functions 16
1.4 The existence of a short-run Walrasian
monetary equilibrium 21
1.5 The expected utility of money 27
1.6 Stationary states 32
1.7 The neutrality of money 38
Notes on the literature 45
Suggested reading 46
2 Money and credit in the short run 48
2.1 Structure of the model 51
2.2 Neoclassical views on inside and outside money 53
2.3 Short-run demand and supply functions 62
2.4 Pegging the interest rate 70
2.5 Controlling the money supply 79
2.6 The neutrality of money 91
Notes on the literature 95
Suggested reading 95
Vll
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viii Contents
3 Classical stationary states with money and credit 96
3.1 Consumers' characteristics 98
3.2 Long-run demands and supplies 99
3.3 The equations of steady states 103
3.4 Golden Rule steady states 109
3.5 Balanced steady states 113
3.6 Remarks on dynamics 117
Notes on the literature 121
Suggested reading 121
4 Open-market policies and liquidity 122
4.1 Neoclassical theory revisited 124
4.2 Consumers' characteristics 131
4.3 Short-run demands 132
4.4 Pegging the interest rate 135
4.5 Controlling the money supply 140
4.6 The liquidity trap 144
4.7 The neutrality of money 147
Notes on the literature 149
Suggested reading 149
Conclusion 150
APPENDIXES 153
A Preliminaries 155
A.I Basic notions 155
A.2 Functions and correspondences 157
A.3 Competitive equilibrium 159
A.4 Demand correspondences 160
B Expectations and the real balance effect 164
B.I Demand functions 164
B.2 Short-run Walrasian equilibrium 166
B.3 Stationary states 167
C Money and credit in the short run 170
C.I Demands and supplies 170
C.2 Pegging the interest rate 174
C.3 Controlling the money supply 175
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Contents ix
D Classical stationary states with money and credit 179
D.I Long-run demands and supplies 179
D.2 Golden Rule steady states 181
D.3 Balanced steady states 185
E Open-market policies and liquidity 186
E.I Short-run demand correspondences 186
E.2 Pegging the interest rate 188
E.3 Controlling the money supply 190
E.4 The liquidity trap 191
References 193
Index 197
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