Overview

sound money


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Money which preserves stable purchasing power. This will only happen if the authorities issuing the money give priority in their policies to maintaining its value, and have an established reputation for such policy priorities, which in turn leads to market expectations of price stability. A sound money policy is in conflict with the Keynesian view that the primary responsibility of the monetary authorities should be maintaining a stable level of effective demand. While a policy of priority for demand management does not directly lead the authorities to promote inflation, it does mean that the authorities tend to tolerate any inflation that does occur by accommodatory monetary policy, which in turn leads to market expectations that inflation is likely.

Subjects: Economics.


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