(1) Economists need to be able to understand the proper distinctions between means-of-payment money and liquid assets;

(2) know the difference between money creating institutions and financial intermediaries;

(3) recognize aggregate demand is measured by the flow of money – not nominal GDP;

(4) recognize that INTEREST RATES ARE THE PRICE OF LOAN-FUNDS, NOT THE PRICE OF MONEY,

(5) that the price of money is represented by the price level,

(6) does not confuse the supply of money with the supply of loan-funds

(7) that inflation is the most important factor determining interest rates operating as it does through the demand and the supply of loan-funds.

(8) and above all else recognize that even a temporary pegging of a series of federal funds rates over time forces the fed to abdicate its power to regulated properly the money supply

The significant economic purposes for which a debt was contracted, or the manner in which it was financed, is of inestimatable value in evaluating it’s impact.

For example if the debt was acquired to finance the acquisition of a (new-security), the proceeds of which are used to finance plant and equipment expansion, rather than the purchase of an (existing-security) to finance the construction of a new house, rather than to finance the purchase of an existing one (as will Paulson’s planned $700 bill bailout), or to finance (inventory-expansion), rather than refinance (existing-inventories).

The former types of investment are designated as “real” as contrasted to the latter, which constitute “financial” investment (existing homes).

Financial investment provides a relatively insignificant demand for labor and materials and in some instances the over-all effects may actually be retarding to the economy. Compared to real investment,it is rather inconsequential as a contributor to employment and production.

Only debt growing out of real investment or consumption makes an actual direct demand for labor and materials.

I.e., Alfred Marshall, the Cambridge economists, is responsible for developing the cash-balances approach to money. For example, if individuals collectively desire expanding their cash balances (increasing the period over whose transactions purchasing power in the form of money is held), they will initiate a chain of events which will lead to a net reduction in their aggregate holdings of cash.

That is, an over-all increase in the demand for money leads to falling prices, a decline in profit expectations, reduced borrowing from the banks — and therefore a smaller volume of cash balances.

Money thus is truly a paradox – by wanting more, the public ends up with less, and by wanting less, it ends up with more. All motives which induce the holding of a larger volume of money will tend to increase the demand for money – and reduce its velocity. Therefore, if there is a flight from the dollar, there will be hyperinflation in terms of dollar denominated assets.

Managing interest rates (in the short run) is antithetical to the noninflationary management of the money supply – and that in the longer term we have not only higher rates of inflation but higher interest rates as well.