A policy rule for ‘Say's Law’ in a theory of temporary equilibrium

In a theory of temporary macroeconomic equilibrium this paper considers whether there is a simple nondiscretionary rule of monetary management under which the free play of market forces will always equate aggregate money demand to the sum of expected money incomes, whatever the latter may be, so that aggregate demand ceases to be a determinant of the economy's behavior. The rule proposed is that the Central Bank should let the commercial banks determine their cash reserves by trading negotiable securities with it at current prices. The conditions for the rule's success are given and are supported by theoretical considerations.