Money market is where the credit is made. The demand for money and the supply of money in an economy determine the size of credit concurrently. On one hand, credit is demanded by the companies to some extent, as certain entrepreneurial projects can be carried on, yet only the supply of credit determines how many of them can be realised. On the other hand, credit is supplied when abundant funds are available, yet only the demand for credit, stimulated by the available economic projects, determines how much will be actually spent. Interest rates are defined on the money market.
Historical Backdrop
• RICE VAUGHAN Discourse of Coin and Coinage: money increase of trade.
• GUSTAV CASSEL The Nature and Necessity of Interest: demand and supply for waiting.
• KNUT WICKSELL Lectures on Political Economy: supply and demand for money.
• IRVING FISHER The Rate of Interest: money markets.