Definition of Money According to Classical Economists:

According to classical economists money is just a medium of exchange and it can not influence the income and employment of a country. In other words, the money supply which is in circulation just performs the function of exchange of goods and services. People keep money with themselves so that they could transact goods and services. Thus, according to them money is just a token and it has nothing to do with economic activity of a country. They further say that money is like a veil which wraps the goods and services in itself. Money has been accorded as a veil because it has camouflaged the operation of real economic forces. Classical economists do not rule out the act of savings or borrowing. They think the savings, borrowings and lendings take place under the shield of a veil. It means that they have attached the problems of savings, borrowings and lendings with the transactive motive of holding money. Whether any body purchases the goods or services or borrows, both are similar functions. The funds are borrowed or lent with the help of money but they do not influence the economic activity in any way. In this respect, Adam Smith writes:

"Money is like a road which helps in transporting the goods and services produced in a country to the market, but this road does not itself produce any thing".

Again classical economists:

"Accord money like an agent which expedites the chemical action of any process, but it can not change the components of chemical action".

Thus classical economists are of the view, that money facilitates the transaction of goods and services, but it does not influence the quantity of goods and services in any way. It means that money can not influence the real variables like production, income and employment. It can only influence the monetary variables like monetary wages and prices. In other words, if the supply of money in a country is increased the income and employment will remain unaffected. The increase in supply of money will lead to increase the prices, hence monetary wages. When prices and wages increase in the same proportion real wages will remain the same. As a result, the employment and output will remain the same.

All above discussion shows that the ideology that money cannot influence economy was a corner stone of classical economics. This philosophy remained popular till before and after I world war. But when classical utopia of nonintervention collapsed during 1970's depression the concept of money as a veil disappeared and money was accorded a dynamic element. AH the problems which emerged during 1930's were attributed to money. Because of this reason, "Money was accorded Evil Genius". The money which got the importance by putting to an end the problems of barter system, was later on accorded as veil and finally it was held responsible for inflation and deflation.