7 Mart 2009 Cumartesi

Monetary Economics

MONETARY THEORY:

  • "Monetary theory is like a Japanese garden. It has esthetic unity born of variety; an apparent simplicity that conceals a sophisticated reality; a surface view that dissolves in ever deeper perspectives. Both can be fully appreciated only if examined from many different angels, only if studied leisurely both in depth. Both have elements that can be enjoyed independently of the whole, yet attain their full realization only as part of the whole"- Milton Friedman (the Optimum Quantity of Money, 1969)

MONETARY HISTORY:

Nation's monetary history shows that monetary stability is an important determinant of economic stability. Safeguarding or maintaining the long-run purchasing power of money is essential for the future of private property and a free society- clearly set the rule of law (monetary rule to quide the Centra Bank's policy) is necessary for a free sociey and the private property.

MONETARY POLICY:

The primary objective of the central bank's monetary policy should be a long-run price stability- irrespective of the complexities of economic change, the primary goal of the central bank is to find policies that contribute to a noninflationary environment and so to economic growth.
With legally or constitutionally enforceable commitment to long-run price stability, the sole objective of monetary policy of a nation monetary system is to maintain stable value of money- a good kind of money policies by monetary law, the rule of law of the monetary policy.

In contrast to the government monetary policy under the rule of law, Government discretionary policies (such as, wage-price controls) undermines the rule of law by creating inflation that erodes value of money and distorts the relative prices, making production, consumption and investment decisions of individuals more uncertain.

Constitution need not dictate the exact rule for the Central Bank (CB) to follow in it pursuits of long-run price stability, but Constitution should hold the CB accountable for achieving that goal- and not require the CB to respond to supply shocks that would lead to one-time increase or decrease in the price level.

The puplic's trust and confidence in the future purchasing power of the money (such as Yen, dollar, Euro, TL or call it anything else) can be permanently increased by a legal mandate, directing the Central Bank to adopt a monetary policy rule to achieve long-run price stability that essential for the future of private property and a free society.

Monetary Phenomena: TYRANNY OF THE STATUS QUO

"The purely monetary connection between ruler and subject demonstrated the absence of any other relationship. The continuous depreciation of currency by rulers was an appropriate technique within such a relationship; for these methods, which give all the benefits to one side and the entire loss to the other. This has been traced to the fiscal policy of rulers who use the royal prerogative of coinage as a means of taxation without concern for the consequences of devaluation", Georg Simmel, from Philosophy of Money.