Eugene Fama's influential argument that the price level and real allocations are independent of the volume and composition of private financial portfolios, including bank deposits, is examined. An incomplete analysis of the role of financial assets leads to a failure to distinguish between real bookkeeping or accounting services of cash or bank deposits, which are separable from portfolio compositions, and their real settlement services, which are not. This failure undermines the policy conclusions that control of the monetary base is sufficient to control the price level and that banks and related financial intermediaries stand in no need of special regulation. Copyright 1988 by Royal Economic Society.
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