Money and banking is the subset of economics which is concerned with

the nature, history, and functioning of money-creating institutions, including

techniques developed for their control and the interrelations between mone-

tary, price, and employment theories.1 The combination of the two words

money and banking emphasizes that commercial bankers are not merely re-

tailers of money but are manufacturers of money. Commercial banks create

deposits which serve as money. It is therefore logical that the theory of

money and the institutional organization of the monetary and banking system

should be dovetailed.

The study of money and banking can be both a stimulating and a trying

experience. It is stimulating because it touches directly the most challenging

problems facing our economy- inflation, unemployment, balance of pay-

ments fluctuations, and economic growth and welfare. The primary concern

of this book is to analyze the impact and significance of monetary policy, as

well as fiscal and incomes policies, to our economy.

The study of money and banking is trying because there are no absolute

answers or "eternal truths." There are many differences of opinion among

experts. These controversies stem from the evolutionary character of money

and banking. Monetary institutions and regulations are constantly changing to

meet new problems or better cope with old ones. Moreover, the theory of

money (demand and supply) also changes both as the institutions evolve and

as human behavior within society evolves. This is in specific contrast to other

fields of study, such as the grammatical structure of a dead language or the

known theorems of geometry. In a world of change, it is certainly comforting

to reflect that a straight line is the shortest distance between two points, and

that it always has been and always will be, within a Euclidean framework.