#Notion definition money plus#

So Friedman gives two types of definitions of money. However, the correlation evidence for 1950, 19 suggested a broader definition of money as “any asset capable of serving as a temporary abode of purchasing power”. Even with this adjustment, cash and deposit monies were not strictly comparable over long periods. But he could not establish a single index of this sophistication. This was a narrower definition of money and the adjustment in both demand and time deposits of commercial banks was devised to take into account the increasing financial sophistication of the commercial banks and the community. This is the “working definition” of money which Friedman and Schwartz use for the empirical study of the monetary trends of the US for selected year 1929, 1935, 1950, 19.

#Notion definition money plus#

Thus he defines money as “the sum of currency plus all adjusted deposits in commercial banks”. By money Friedman means “literally the number of dollars people are carrying around in their pockets, the number of dollars they have to their credit at banks in the form of demand deposits and commercial bank time deposits”. Friedman and his followers at the University of Chicago. The monetarist (or Chicago) view is associated with Prof. Empirically, they forged a link between the stock of money and output via the rate of interest. Further, by excluding them from the definition of money, the Keynesians place greater emphasis on the interest elasticity of the demand function for money. By ignoring these assets the traditional view is not in a position to analyse their influence in increasing their velocity. These include time deposits of commercial banks, commercial bills of exchange, etc. This view about the meaning of money is very narrow because there are other assets which are equally acceptable as media of exchange. Hicks in his Critical Essays in Monetary Theory points towards a threefold traditional classification of the nature of money: “to act as a unit of account (or measure of value as Wick-sell put it), as a means of payment, and as a store of value.” The Banking School criticised the traditional definition of money as arbitrary. Keynes in his General Theory followed the traditional view and defined money as currency and demand deposits. The Traditional Definition of Money:Īccording to the traditional view, also known as the view of the Currency School, money is defined as currency and demand deposits, and it’s most important function is to act as a medium of exchange. Johnson distinguishes four main schools of thought in this regard which are discussed below along-with the views of Pesek and Saving. There being no unanimity over the definition of money. Theoretical and Empirical Definitions of Money : Thus besides legality, there are other determinants which go to make a thing to serve as money. Such things are cheques and notes issued by commercial banks. On the other hand, they may accept some other things as money winch are not legally defined as money in discharge of debts which may circulate freely. But people may not accept legal money by refusing to sell goods and services against the payment of legal tender money. Some economists define money in legal terms saying that “anything which the state declares as money is money.” Such money possesses general acceptability and has the legal power to discharge debts. Such wide definitions have led Sir John Hicks to say that “money is defined by its functions: anything is money which is used as money: ‘money is what money does.” These are the functional definitions of money because they define money in terms of the functions it performs. and also abstract money which “is the vehicle of our thoughts of value, price and worth.” He includes in it the ‘concrete’ money such as gold, cheques, coins, currency notes, bank draft, etc.

Professor Coulborn defines money as “the means of valuation and of payment as both the unit of account and the generally acceptable medium of exchange.” Coulborn’s definition is very wide. Though Scitovsky points toward the difficulty of defining money due to moneyness, yet he gives a wide definition of money.