A commenter asks how I reconcile my assertion that money is a store of vaue with my view that macroeconomics should not emphasize the role of money as a store of value. It is only the second view–that money is not so important–that is controversial.

There is a fundamental methodological error in macroeconomics that leads to saying that if there is no excess demand for money then there can be no excess supply of goods. I think that the methodological error comes from ignoring the heterogeneity of goods, labor, and capital. The methodological error goes back to Joe, the representative agent, working at the GDP factory.

Under the fundamental methodological error, the only way to break Say’s Law (supply creates its own demand) is for people to want to hold on to money as a store of value. Instead, I have been arguing that there can be all sorts of excess demands and supplies for different types of output that are not derived from excess demand for money. The idea that many markets can be out of equilibrium for reasons having nothing to do with the supply and demand for money as a store of value should be very obvious, once you think about it. What is remarkable is how much of the formal macro literature starts by assuming away those non-monetary reasons for disequilibrium. My contention is that the traditional emphasis on money as a source of disequilibrium reflects this misleading approach to doing macroeconomics, rather than the real world.