This book is a study of the Federal Reserve System that is motivated by what I perceive to be an important omission in most theoretical and applied approaches to monetary economics. Modern monetary economics has been first and foremost a demand-side theory. Whether the model of the monetary economy has been based on a static, single period assumption, an overlapping generations assumption, or an infinitely lived representative agent assumption, the emphasis has generally been on refining the theory of money demand. Many of the insights of the modern approach have been grounded in the marginal utility analysis of microeconomics.

The theme of this book is that a microfoundation of money supply is the missing element in modern monetary economics. I ask the monetary theorist to reflect on the truly bizarre nature of the modern approach to the supply side. Typical supply-side assumptions are of the genre of Friedman's famous helicopter money. Sometimes the money supplier is figuratively a helicopter, sometimes an unconstrained monetary dictator, and sometimes a central banker with a particular money supply preference (for example, a conservative central banker). The common thread to all of these assumptions is that supply tends to be exogenous. To be sure modest attempts have been made to introduce supply-side microfoundations into these models. But nowhere do we have an approach grounded in the microeconomics of supply that compares with the sophisticated treatment of demand. Such an approach would be very much in the spirit of industrial organization theory where concepts like competition among suppliers, cost of production, and industry structure play fundamental roles.