Money and Capacity Growth.

Abstract

IN ilnS review article on monetary theory, Harry G. Johnson noted that almost nothing has yet been done to break monetary theory loose from the mould of short-run equilibrium analysis, conducted in abstraction from the process of growth and accumulation, and to integrate it with the rapidly developing theoretical literature on economic growth (important exceptions noted here are Tobin and Enthoven). I An integration of monetary and growth theory is attempted in my paper; and the effects of money upon the real variables in a growing economy are explored. There are five main features to my full-employment growth model. First, the familiar techniques of shortrun aggregative economics-the equilibrium conditions in the goods and services market and in the money market-are modified and are used to study the role of money in a growing economy. In this way, the short-run analysis becomes a special case of the general analysis of growth. Second, the proportionate rate of growth of the price level will converge asymptotically to the proportionate rate of growth of the money supply less the proportionate rate of growth of effective labor. Third, the proportionate rate of

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