The "monetary" conditions of economic stability

There are two main types of approach to ascertaining the monetary conditions of economic stability: the "flexibility" approach, and the "monetary stabilization" approach. The first aims at the restoration of flexibility of costs and prices as to prevent discrepancies between the value of money as an exchange medium and the value of money as a standard for accounting, or of the future commitments of deferred payments. The second contemplates stabilization of rigid prices, through lifting or lowering the flexible prices to a level comparable to that of the rigid ones by means of an increase or decrease in the quantity of effective money. Each of these approaches fails to eliminate fully the destabilizing influences of money. Certain parts of the "Rexibility" approach are much too abstract and utopian to be of practical significance. Moreover, this approach is, in toto, too static to be theoretically adequate. The "monetary stabilization" approach suffers from the existence of conflicting rigidities, i.e., a certain rigid price, if chosen as the object of a monetary policy regulating the quantity of money in such a way as to remove the danger of painful up or downward movement of this rigid item, implies changes in the volume of money which may differ in magnitude from those implied by another rigid price. This approach, therefore, needs the assistance of the "flexibility" method (elimination of conflicting rigidities) in order to be satisfactory. Generally speaking, the solution would be a combination of the two types of approach, using the feasible parts of each, provided these parts fit together to a consistent policy.