Our foundational analytic apparatus perpetuates the simple ISLM framework:
- net investment (I)
must equal net saving (S)
and the demand for liquidity (L)
must be accommodated by the supply of money (M)
However, whereas Freidman disciples continue to believe that fiscal and monetary policy will attain market balance in the short-run; we believe that market balance is achieved only in the long run. And thus, government and central-bank policies are needed because the “long run” may be very long… taking into account rational expectations.
More to come.