| Summary: | Concluding his excellent survey of recent monetary theory, economist Harry Johnson suggested that future developments in this field should come from attempts to break monetary theory loose from the mould of short-run equilibrium analyses, conducted in abstraction from the process of economic growth and accumulation, and to integrate it with the rapidly developing theoretical literature on economic growth. This article summarizes an attempt to deal with these issues. The first part of the article describes the representative economic unit of an idealized economy and it analyzes the constraints imposed on its maximizing behavior. Section II is concerned with the optimizing conditions and presents the derivation of the demand functions for consumption, cash balances, and the stock of capital. The third section introduces an expectations formation hypothesis and presents a simple aggregative macroeconomic model in which the demand functions for assets and consumption are those which were derived from the analysis of the maximizing behavior of individual economic units. The final part of the article considers the short-run and long-run effects of a change in the rate of monetary expansion as well as the stability of the equilibrium growth path in a monetary economy.
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