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Selected Essays in Monetary Economics (Collected Works of Harry Johnson) by Harry Johnson

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Chapter VIII

Is There an Optimal Money Supply?*

The title question of this chapter is provocative and interesting, inasmuch as it encapsulates a whole area of rapid recent development in monetary theory in an apparently simple question. Yet it is really a trick question, the answer to which must be ‘yes’ if the terms are properly defined, and the difficulty of which inheres in such proper definition of the terms. Since the question has confused some theorists, I make no apology for spending much of this chapter on clarification of the issues, even though this requires restatement of some elementary theoretical points.

To begin with – in case anyone is under any illusions on this point – the question has nothing to do with the optimal conduct ...

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