[According to Monetarists, during a monetary expansion] firms perceive the real wage to be falling; workers (initially) perceive it to be rising. . . . To the firm, the “real wage” means the wage rate in comparison to the price of the firm’s output. Changes in this classical, or Ricardian, real wage are not difficult to perceive. To the worker, the “real wage” means the wage rate in comparison to the prices of all the goods and services that the workers buy. Changes in this more neoclassical, or Fisherian, real wage are relatively difficult to perceive.#
With the direct cash-balance effect in play and the consequent increase in the derived demand for labor, it is not clear that the possible misperception of the real wage has any claim on our attention. Monetarism could easily do without this particular twist.#
Unlike the Keynesian and Austrian visions, then, the Monetarist vision can be stated in terms of changes in output Q or real income Y/P without special reference to the individual objects of expenditure or components of output V and I. In effect, Monetarism is virtually framework-independent. As long as a framework gives sufficient play to the variables included in the equationof exchange, the Monetarist vision can be expressed in that framework. #
It is one thing to claim that changes in the interest rate are insignificant because they do not change the eventual, or ultimate, equilibrium . . . It is quite another thing to claim that changes in the interest rate – and consequent changes in the mix of outputs – are an insignificant part of the process that moves the economy away from and then back to the initial equilibrium.#