Develops an alternative paradigm for monetary economics based on credit rather than the transactions demand for money. Originally presented in Milan, in abbreviated form, in November 1999 at Banca Commerciale Italiana and at Bocconi University as the Raffaele Mattioli Lecture. Sets out the problems with the current state of monetary economics. Explains how financial markets differ from markets for ordinary commodities. Develops the equity-based theory of banking and uses it to derive the supply of loanable funds in an idealized competitive banking system. Outlines differences and similarities between the model banking system and the current, restricted banking system. Analyzes equilibrium in a simplified corn economy. Explains the important differences in the role of monetary policy in the corn economy and in a modern credit economy. Considers a general equilibrium theory of credit. Presents the implications of the new paradigm for monetary policy, regulatory policy, aspects of the liberalization of financial markets, banking sector restructuring, and regional growth and stabilization policies. Applies the new paradigm to analyze the 1997 crisis in East Asia and the 1991 U.S. recession and subsequent recovery. Explores the monetary policy implications of the New Economy.
