(1) Neutrality of Money — Definition and Refutation

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Mainstream economics posits that money is neutral. What is that supposed to mean?

First, a simple definition: 

neutrality of money is the idea that a change in the stock of money affects only nominal variables in the economy such as prices, wages and exchange rates but no effect on real (inflation-adjusted) variables, like employment, real GDP, and real consumption.

http://en.wikipedia.org/wiki/Neutrality_of_money 

The macroeconomic theory called monetarism held that money is neutral “in the long run.” This essentially means that money is thought to have insignificant effects on real variables such as output, the level of employment and real GDP in the long term. The New Classical macroeconomics of Robert Lucas used rational expectations to argue that money is also neutral, both in the short and long run. According to this view, if the money supply is increased, then only nominal variables will be affected, rather than real variables like relative prices, output and employment, and prices and wages will simply adjust to their general equilibrium values (Horwitz 2000: 11). 

The source. 

However, as I have shown here, money does affect real variables such as output, the level of employment and real GNP. And as Kalecki has argued, there is no categorical distinction between the long-run and the short-run in so far as the former is build up from the latter. That is to say, the short run cannot impact real variables only to result in the long run no longer showing that impact.

Increasing the money supply is a necessary condition for a growing economy, i. e, for more and better output, optimal capacity utilisation and a growing real GNP.

An economy in which the money supply is constant and where money circulates out of consumption (is withdrawn from the consumption budget and put) into savings and from savings into investments is a stagnant economy, and possibly prone to crisis as the money that is diverted to finance investments is subtracted from effective demand. But it is the latter that sustains higher levels of sales whose prospect induces corporations to expand production, thereby adding to effective demand in that their investments mean additional income for other economic agents (workers, suppliers etc.)

In this way, investment creates more income which increases the ability of economic agents to put savings aside. Thus investment creates saving and not the other way around.

Newly created money makes it possible to increase investments which increase income which increases (the ability to accumulate) savings. 

Novel money drives the Promethean economy.

Ultimately, what makes modern economic growth possible, is not a system of interlocking markets bringing about an overall equilibrium, but the intervention of the state into the economy as sovereign currency issuer.

Continued here.