MONEY, LIQUIDITY AND FORCED SAVING IN CLASSICAL ECONOMICS

Abstract

This paper examines the classical theory of money under a regime of convertible currency. It begins with a review of the classical model of the optimum monetary supply, stressing the idea of neutral money and also the markets’ adjustment process to variations in the provision of precious metals in both the short and the long run. After that, a brief incursion into the monetary debates of nineteenth century England is conducted, making explicit the main divergent points among the contentious parties over the gold-standard functionality. In the end, the most important channels of violations of the classical postulate of neutral money are analyzed, specially the liquidity motive and the forced savings doctrine.