Financial Markets and Economic Growth (original) (raw)
Black-Fama-Hall CPI: Consumer Price Index century, probably Joseph Schumpeter 2 coined the term "veil of money" which is particularly apt to express this difficulty. 3 In a monetised economy, the realities are, so to speak, veiled behind the observable flows of money. A significant part of the present thesis is dedicated to removing this veil from the financial market. What are the realities of the phenomena that can be observed there? But we won't leave it at that. Although the brushing aside of the veil of money brings some useful results, it does not, as also Schumpeter remarks, allow for a complete comprehension of all relevant processes. 4 After all, it cannot be denied that the "realities of the phenomena" on the financial market are actually effectuated by money transactions. Hence, in order to grasp the rationale of the financial market, it is not enough to understand the "realities" on the one hand, and the cash flows on the other. The connection between the two must be clarified, too. Therefore, the following study also provides an in-depth analysis of money and its purchasing power. In the end, the aim is not to merely remove the veil of money from the financial market, but to examine it in detail. In modern monetary theory, the link between the "outward mechanism of paying and spending" and the "realities of the phenomena" is dealt with mainly in two different ways. The first one is based on Keynesian short-run macroeconomic analysis. It finds its most familiar expression in the so-called IS/LM-model which is contained in nearly all modern textbooks on macroeconomics. This model traces back to John Hicks 5 who, himself, based it on the famous General Theory of Employment, Interest, and Money 6 by John Maynard Keynes. In the IS/LM-model, the link between monetary spending and the "realities" occupies the centre stage. In fact, monetary expenditures 2