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What did Tobin criticize about Monetarist

What did Tobin criticize about Monetarist

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Abstract

Tobin was indeed a Keynesian supporter and he's against the monetarist view where Tobin got to criticize.

Tobin has set himself the objective of developing a macroeconomic model more general than that specified by Keynes in The General Theory

Criticizing about monetarist

Tobin criticizes this approach because it focuses on the moment in which money is created and overlooks the fact that the money created must be accumulated by wealth-owners; in other words it neglects the store of wealth function of money. Below is the Tobin view about money

"The essential function of financial intermediaries, including commercial banks, is to satisfy simultaneously the portfolio preferences of two types of individuals or firms. On one side are borrowers, who wish to expand their holdings of real assets - inventories, residential real estate, productive plant and equipment, etc. - beyond the limits of their own net worth. On the other side are lenders, who wish to hold part or all of their net worth in assets of stable money value with negligible risk of default. The assets of financial intermediaries are obligations of the borrowers – promissory notes, bonds, mortgages. The liability of financial intermediaries are the assets of the lenders – bank deposits, insurance policies, pension rights "

Tobin specifies the factors that allow intermediaries to carry out their function : “The reasons that the intermediation of financial institutions can accomplish these transformations between the nature of the obligation of the borrower and the nature of the assets of the ultimate lender are these:

1) Administrative economy and expertise in negotiating, accounting, appraising, and collecting;

2) Reduction of risk per dollar of lending by the pooling of independent risks, with respect both to loan default and to deposit withdrawal;

3) Governmental guarantees of the liabilities of the institutions and other provisions are designed to assure the solvency and liquidity of the institutions.”

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