Classical Dichotomy

It is the thesis that states the real economy can be studied independently of the economics of money banking and financial markets.

In this sense, it states that money is the unpremeditated outcome of a particular effort of the member of society, who in their ways determines the degree of the saleability of a particular commodities production.

In such conditions, money is just a social technology that can be used as per terms of trade. 

The theory states MV= PY where M is money stock, V is the velocity of circulation, P is the price and Y is income. 

There have been many objections to the theory as it is believed that modern economies are completely based on capital goods, which are determined through liquidity business cycles and monetary policy – even before the generation of cash flow, and the value of the stock or the availability of loans are all dependent on finance, which can be accessed through money markets.