The Theory Of New Monetary Economics

"The New Monetary economics"is a term put forward by American economist Robert Hall in 1980s, and use to describe an economic analytical means, which tries to provide an answer to account for question in Walrasian general equilibrium, and makes economic analysis back to the general equilibrium world of Walrasian barter. The New Monetary Economics have two sub-branch, one is BFH Payments System, the other is Legal Restriction Theory. The main point of The New Monetary Economics is: The current financial system is not natural evolution, but is the inevitable result of the legal restriction or the government control. Under laissez-faire, money doesn't necessarily function as both account and exchange medium, and these two functions of money will be taken on by different material. The market exchange with money for medium finally will be replaced by "sophisticated barter systems". For displaying the theoretical framework of The New Monetary Economics, in addition to introduction, there are six chapter to introduce and appraisal the theory of The New Monetary Economics in this paper. Chapter 1: The Thought Origin of The New Monetary Economics. The precursors of the new monetary economics thought can be traced back to the financial innovators in the beginning of 20 century. Historically, the thoughts which have significant effect on the modern new monetary economics include: 1.thought of the separability of monetary function put forward by Montesquieu and Steuart in their respective literature;2.Bentham's idea of interest-bearing currency as the thought origin of modern legal restriction theory;3.thought of libertarian school within the new monetary economics tradition brought forward by Meulen, Kitson, Anderson and so on;4."compensated dollar"plans proposed by Williams and Fisher;5.German-language precursors of the new monetary economics. Menger,Simmel,Lifemann,Wicksell presented thought of the new monetary economics in their respective literature. Chapter 2: Theory of Media of Exchange. The new monetary economics had inherited the evolutionary approach of money, building upon Menger's theory of the origins of money. The development of media of account is logically and historically prior to the development of media of exchange. The evolution of media of account and exchange had passed by the process of the separation, the unification and the separation again, but Menger's evolution of a single unified media of account and exchange is not the last stage of the evolution of money. Loading to further changes in financial intermediate, it separates media of account and exchange, and generates multiple coexisting media of account, exchange and settlement. Under the separation of money function, the different institutions make media of exchange present different types. Along with the development of transactions technologies, media of exchange from a world with only government fiat currency (banknote), through the transition world that financial assets and government fiat currency coexist as exchange media, finally shape a world where all exchange media issued by private bear pecuniary returns, then government fiat currency disappear. Chapter 3: Theory of Media of Account. The new monetary economics thinks that the evolution of media of account follows a path similar to exchange media and settlement evolution in an unregulated environment. Although medium of account is used dominantly in the middle of financial evolution, medium of account can vary greatly in the early and late stages offinancial evolution. In advanced stage of financial evolution, the category of account media will raise and become the coexistence of different media of account. Economist of new monetary economics had put forward special and different media of account in their respective literature, as the means controlling the price level. In practice, the design of account media of the new monetary economics has a long history. From Montesquieu's macute to modern media diversified commodity bundle media of account, economists had designed many media of account, for example Hall's "ANCAP", Greenfield and Yeager's "valun", Chile UF used in practice. Chapter 4: BFH Payments System Models. Economists further develop and deepen the theory of money function separation with BFH payments system for foundation, and put it in New Keynesian and Neo Classical models to testify the theoretical verification, analyzing the feasibility of the theory of the new monetary economics. Through a comparative static analysis and a dynamic stochastic analysis, they achieve the conclusion: Yield chock results in changes in real income, but real expenditure, supply and demand of money cause no disturbance to real income. Therefore, the BFH payments system models proved its theoretical probability. Chapter 5: Legal Restrictions Theory. Wallace and Sargent ,representative of neo-classical school, establish "The Legal Restrictions Theory"in the process improving Samulson's OLG models. They deny that the current financial system is the result of natural evolution, but take it as a system supported by state legal restrictions. Under laissez-faire, if money and venture bonds coexist, the nominal interest rate should be near to zero, otherwise they can't coexist. Because government carries out a legal restrictions for intermediate with different consumer, money and interest-bearing asset can coexist. For legal restrictions, monetary policy had been a means helping government to regulate financial institution issuing money, to control the whole money balance, to enhance revenue of the...