Money and the Money Wage Rate

Abstract

This chapter reviews a brief analysis in support of Keynes's contention that sticky money wages are an essential property of money. The support for Keynes's remarkable assertion rests largely on the contentions that the money wage rate is the numéraire of the monetary system and a flexible numéraire would cause the value of money to flex randomly, which, in turn, would destroy the usefulness of money both as a store of value and as a medium of exchange. The money wage rate is the numéraire of the economic system simply because it is the predominant determinant of the value of money. The money wage rate is the anchor price of the economy. To have a stable numéraire, sticky money wages are essential. Sticky wage rates imply sticky costs of production and a relatively stable value of money. Thereafter for Keynes, the utility of money is solely derived from its exchange value and the services money provide can be rendered only if there is sufficient stability in its purchasing power in buying the goods that it represents. Money cannot survive for long if its value is subject to frequent random variations is that such fluctuations would destroy its general acceptability.