The views of the economists about the nature of money have undergone changes during the past century or so. The early classical economists, for example, gave little importance to the role of money as a causative factor in the national economy of a country. They looked upon money as an unimportant and passive factor in the operation of the economy.

In modern times, however, the conception of money has undergone a change. The modern economists disagree with the classical view that money is a passive and insignificant factor, that monetary disturbances are rare and that they automatically correct themselves with the lapse of time. According to the modern economists, money plays a leading and decisive role in determining the level of economic activity in a country.

Money, according to them, is a powerful instrument, which controls and regulates the level of general economic activity in the economy. The supply of money, for example, has significant effects upon the total volume of investment, output, employment, distribution and consumption of wealth. An increase in the supply of money, for example, may lead to greater investment, output and employment.

An excessive increase in the supply of money may result in hyperinflation, rising prices and growing shortages in the economy. A decrease in the supply of money, on the contrary, may produce just the opposite effects on the national economy. It may result in deflation, falling prices and falling production. Both inflation and deflation have far-reaching effects not only on the production, but also on the distribution of income and wealth in society. Furthermore, money is a liquid asset, which can be easily hoarded as a form of wealth.

Hoarding and dishoarding of money can have important and far-reaching effects on the working of the economy. Large-scale hoarding of money on the part of the public will result in a diminution of the money supply, with all the attendant consequences. A sudden and large-scale dishoarding of money will surely have inflationary effects on the economy.