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Stabilizing Money Value Modigliani’s main critique was that money earning full competitive return, so that no amount was too much, would make monetary policy impossible in its usual forms. My best answer at the time was that full-return money ought to remove inflationary or deflationary pressures. But I agreed with him that money value might drift, even so, and that some control would be a safeguard if someone could think of a way. The best that occurs to me is continuous revaluation of the dollar. Legal tender laws specify dollars, or other currency in other countries, as the default means of payment recognized in satisfying money obligations. Laws could be changed to specify real dollars instead. Real means corrected for inflation or deflation. This would have been impractical before the information age. The problem now seems less. Spendable money, called M1, now means currency plus checking accounts. Government publishes current inflation figures online. Omnibus accounts could adjust automatically. They might show values in nominal and real dollars both. Account value would not change. Correction for inflation would show fewer dollars worth more each. Correction for deflation would show the opposite. Currency itself cannot adjust so elegantly. It would remain legal tender, but not necessarily at face value. Currency would impose a translation cost on its spenders and receivers. Say for example that the change in legal tender laws was effective as of January 1, 2020. The real value of the dollar, whether accounts or currency, would mean its value of that baseline. Nominal value would be that plus inflation since. Calculators or iPads could keep track of the conversion rate. The cost and nuisance of this conversion should be manageable. But it would probably reduce demand for currency where cards or the equivalent do as well. The benefit is in encouraging long-term contracts and saving “menu change costs.” That means costs of changing prices. There is no need to change them on account of inflation if prices are specified in real rather than nominal dollars. Chapter 8 Banks, Money and Macroeconomics 2/8/16 17 HOUSE_OVERSIGHT_011106