The neutral money objective has been criticized on the following grounds:

(i) The concept of neutral money is an outmoded concept. It is based on the classical quantity theory of money according to which there exists a direct and proportionate relationship between the quantity of money and the level of prices. This theory has many limitations and has been discarded by the economists.

(ii) The neutral money policy will not ensure stability in a growing economy as characterized by continuous technological improvements. If, in such an economy, supply of money is kept constant, it would lead to deflationary conditions with continuously falling prices.

(iii) The concept of neutral money fails to explain the conditions of depression in the economy. During depression, prices fall even though there is no reduction in money supply. Similarly, prices fail to rise during depression even when the supply of money is increased,

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(iv) The neutral money policy is self-contradictory in nature. On the one hand it assumes a passive role for money because the concept of neutral money is based on philosophy of laissez-faire (or government non-intervention).

On the other hand, it requires the monetary authority to maintain an effective money supply through time-to-time adjustments in accordance with the fundamental changes in the economy. Clearly the active of role of the monetary authority and the philosophy of laissez-faire cannot go together.

(v) Neutral money policy is impracticable in the sense that the philosophy of laissez-faire on which it is based, is unrealistic in a modern economy. Supply of money has to be increased for reviving the economy from depression. Again, economic development in an underdeveloped country is not possible without the expansion of money.

(vi) Money is not neutral in the actual world. It plays an active and dynamic role in the process of economic development and in dealing with the situations of inflation and deflation.

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(vii) Neutral money policy is difficult to implement. It requires that adjustments in money supply are to be made keeping in view the changes in the velocity of money. But, in practice, it is not possible to have accurate estimates of the changes in the velocity of circulation of money.

In short, the neutral money supply is now an outmoded policy. It cannot control economic fluctuations and is unable to fulfill the requirements of economic development. In a modern economy, monetary expansion is indispensable and money is no more neutral.