The Real Money Theory (RMT)
The Real Money Theory (RMT) was developed by Hector McNeill in 20201 to replace the QTM with a more realistic identity which includes variables that represent the missing asset classes in the QTM as well as savings and oversease financial flows. Several versions have been created and the baseline2 version of the RMT is presented below:
(M - (l - r - p - m - a - h - f - c - o - s)).V = P.Y
As can be observed in this identity as well as in the results of QE, all of these asset classes reduce the circulating funds in M by locking these funds into assets which are exchanged in encapsulated markets. Encapsulated markets involve a minority of the national constituency handling high value transactions which remain in restricted markets generally isolated from the supply side production of goods and sevices factor andproducte markets. This has the effect of reducing the funds involved in goods and services transactions and investment provoking a decline in productivity and lowering the ability of supply side companies to pay compensatory wages.
1 McNeill, H. W., "A Real Money Theory", Development Intelligence Organization, 2020.
2 RMT baseline version is one where the determinant functions that define P, Y and V are not represented. Note that the QTM contains no determinant functions for any of its variables, M,V, P or Y.
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