In this chapter we introduce a Classical reformulation of the Tobin (1965) model of monetary growth, with fixed proportions in production and Classical saving habits. Section 2.1 presents the standard full equilibrium version of this model type, while section 2.2 considers the money-market disequilibrium extension of it which was extensively studied in the seventies and the early eighties. By means of these reformulations of models of the literature we shall recapitulate some of the important results obtained for this monetary growth model type concerning non-superneutrality of the steady state and the pure Tobin effect, instability of the steady state due to what we call the Cagan effect in the money demand function, and certain new limit cycle results which can be built on such local instability.

The chapter then proceeds, in section 2.3, by providing some new extensions to these Tobin type models. First, since the Tobin models rely on an elaborate form of Say's Law for the market for goods, it is very easy and natural to extend the model to labor market disequilibrium. This disequilibrium is here due solely to capital shortage or abundance and is completely decoupled from the situation on the market for goods. This extension, which basically reformulates the wage–price sector of the model, generally increases the dynamic dimension of the model by two to four, since there is now room for disequilibrium fluctuations of the real wage as well as fluctuations in the growth rate of the capital stock.