How Should We Define the Money Supply? Austrian Versus Monetarist Approach
The purpose of this paper is to provide an aggregate that measures the quantity of monetary signs relevant for studying business cycle. Such an indicator could particularly be helpful in evaluating risks of banking and financial crises.
Two kinds of approaches are opposed: the Austrian and the monetarist (positivist). On one hand, monetarists adopt an empirical approach that takes into account statistical correlation between money supply and national income. On the other hand, the Austrian theory of money and credit lists all claims redeemable at par on demand. Based on individualism, Austrian methodology enables to draw a clear-cut boundary between claim and credit transactions.