Nonneutrality of Money in Classical Monetary Thought
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Debt-Deflation Theory of Great Depressions by Irving Fisher
THE DEBT-DEFLATION THEORY OF GREAT DEPRESSIONS BY IRVING FISHER INTRODUCTORY IN Booms and Depressions, I have developed, theoretically and sta- tistically, what may be called a debt-deflation theory of great depres- sions. In the preface, I stated that the results "seem largely new," I spoke thus cautiously because of my unfamiliarity with the vast literature on the subject. Since the book was published its special con- clusions have been widely accepted and, so far as I know, no one has yet found them anticipated by previous writers, though several, in- cluding myself, have zealously sought to find such anticipations. Two of the best-read authorities in this field assure me that those conclu- sions are, in the words of one of them, "both new and important." Partly to specify what some of these special conclusions are which are believed to be new and partly to fit them into the conclusions of other students in this field, I am offering this paper as embodying, in brief, my present "creed" on the whole subject of so-called "cycle theory." My "creed" consists of 49 "articles" some of which are old and some new. I say "creed" because, for brevity, it is purposely ex- pressed dogmatically and without proof. But it is not a creed in the sense that my faith in it does not rest on evidence and that I am not ready to modify it on presentation of new evidence. On the contrary, it is quite tentative. It may serve as a challenge to others and as raw material to help them work out a better product. -
Liberal Neutrality: a Reinterpretation and Defense*
Liberal Neutrality: A Reinterpretation and Defense* Alan Patten, Princeton University (1) Introduction After a brief ascendancy in the 1970s and `80s, the idea of liberal neutrality has fallen out of favor in recent years. A growing chorus of liberal writers has joined anti-liberal critics in arguing that there is something confused and misguided about the insistence that the state be neutral between rival conceptions of the good. Assuming we can even make sense of the idea of neutrality, these writers contend, it is a mistake to think that there is anything in liberal principles that commits the liberal state to neutrality.1 With a number of former neutralists softening their support for the idea, the rejection of neutrality is quickly becoming a consensus position, even amongst liberal political philosophers.2 According to one writer, all that remains to be done is an “autopsy” on the idea of state neutrality.3 Much of the critique of neutrality has proceeded on the basis of four assumptions. The first contrasts neutrality with perfectionism. To defend state neutrality is to deny that the state can legitimately use its power to encourage ways of life that it supposes to be valuable or to discourage ones that it regards * Earlier versions of this paper were presented at Washington University, at Queenʼs University, at the Canadian Political Science Associationʼs 2010 Annual Conference , and in a workshop at Princetonʼs University Center for Human Values. In addition to thanking the participants in and organizers of these events, I am grateful to Arash Abizadeh, Andrew Lister, Stephen Macedo, Ian MacMullen, Jonathan Quong, Ryan Pevnick, and Anna Stilz for their written feedback. -
Inflation and the Business Cycle
Inflation and the business cycle Michael McMahon Money and Banking (5): Inflation & Bus. Cycle 1 / 68 To Cover • Discuss the costs of inflation; • Investigate the relationship between money and inflation; • Introduce the Romer framework; • Discuss hyperinflations. • Shocks and the business cycle; • Monetary policy responses to business cycles. • Explain what the monetary transmission mechanism is; • Examine the link between inflation and GDP. Money and Banking (5): Inflation & Bus. Cycle 2 / 68 The Next Few Lectures Term structure, asset prices Exchange and capital rate market conditions Import prices Bank rate Net external demand CPI inflation Bank lending Monetary rates and credit Policy Asset purchase/ Corporate DGI conditions Framework sales demand loans Macro prudential Household policy demand deposits Inflation expectations Money and Banking (5): Inflation & Bus. Cycle 3 / 68 Inflation Definition Inflation is a sustained general rise in the price level in the economy. In reality we measure it using concepts such as: • Consumer Price Indices (CPI); • Producer Price Indices (PPI); • Deflators (GDP deflator, Consumption Expenditure Deflator) Money and Banking (5): Inflation & Bus. Cycle 4 / 68 Inflation: The Costs If all prices are rising at same rate, including wages and asset prices, what is the problem? • Information: Makes it harder to detect relative price changes and so hinders efficient operation of market; • Uncertainty: High inflation countries have very volatile inflation; • High inflation undermines role of money and encourages barter; • Growth - if inflation increases by 10%, reduce long term growth by 0.2% but only for countries with inflation higher than 15% (Barro); • Shoe leather costs/menu costs; • Interaction with tax system; • Because of fixed nominal contracts arbitrarily redistributes wealth; • Nominal contracts break down and long-term contracts avoided. -
A Monetary History of the United States, 1867-1960’
JOURNALOF Monetary ECONOMICS ELSEVIER Journal of Monetary Economics 34 (I 994) 5- 16 Review of Milton Friedman and Anna J. Schwartz’s ‘A monetary history of the United States, 1867-1960’ Robert E. Lucas, Jr. Department qf Economics, University of Chicago, Chicago, IL 60637, USA (Received October 1993; final version received December 1993) Key words: Monetary history; Monetary policy JEL classijcation: E5; B22 A contribution to monetary economics reviewed again after 30 years - quite an occasion! Keynes’s General Theory has certainly had reappraisals on many anniversaries, and perhaps Patinkin’s Money, Interest and Prices. I cannot think of any others. Milton Friedman and Anna Schwartz’s A Monetary History qf the United States has become a classic. People are even beginning to quote from it out of context in support of views entirely different from any advanced in the book, echoing the compliment - if that is what it is - so often paid to Keynes. Why do people still read and cite A Monetary History? One reason, certainly, is its beautiful time series on the money supply and its components, extended back to 1867, painstakingly documented and conveniently presented. Such a gift to the profession merits a long life, perhaps even immortality. But I think it is clear that A Monetary History is much more than a collection of useful time series. The book played an important - perhaps even decisive - role in the 1960s’ debates over stabilization policy between Keynesians and monetarists. It organ- ized nearly a century of U.S. macroeconomic evidence in a way that has had great influence on subsequent statistical and theoretical research. -
1 Three Separation Theses James Morauta Abstract. Legal Positivism's
Three Separation Theses James Morauta Abstract . Legal positivism’s “separation thesis” is usually taken in one of two ways: as an analytic claim about the nature of law—roughly, as some version of the Social Thesis ; or as a substantive moral claim about the value of law—roughly, as some version of the No Value Thesis . In this paper I argue that we should recognize a third kind of positivist separation thesis, one which complements, but is distinct from, positivism’s analytic and moral claims. The Neutrality Thesis says that the correct analytic claim about the nature of law does not by itself entail any substantive moral claims about the value of law. I give careful formulations of these three separation theses, explain the relationships between them, and sketch the role that each plays in the positivist approach to law. [A version of this paper is published in Law and Philosophy (2004).] 1. Introduction Everybody knows that legal positivists hold that there is some kind of “separation”— some kind of distinction—between law and morality. But what exactly is this positivist separation thesis ? In what way, according to legal positivism, are law and morality distinct? There are many possible answers to this question. Legal positivism is standardly thought of as a cluster of three kinds of claims: an analytic claim about the nature of law; a moral claim about law’s value; and a linguistic claim about the meaning of the normative terms that appear in legal statements. 1 I won’t have anything to say here about the linguistic issue. -
Between Institutions and Global Forces: Norwegian Wage Formation Since Industrialisation †
econometrics Article Between Institutions and Global Forces: Norwegian Wage Formation Since Industrialisation † Ragnar Nymoen 1,2 1 Department of Economics, University of Oslo, POB 1095 0317 Oslo, Norway; [email protected]; Tel.: +47-22-855-148 2 Centre for Wage Formation at Economic Analysis, POB 0650, Oslo, Norway † Paper presented at the workshop Macroeconomics and Policy Making, arranged in honour of Asbjørn Rødseth, 18 May, 2016, by the Department of Economics, University of Oslo. Thanks to Olav Bjerkholt for comments, and for showing me the article written by Frisch about “rational wage policies”, and the correspondence with Haavelmo that it led to. Discussions at the Workshop in econometrics at Statistics Norway, 21 October 2016, were also very useful, thanks to the participants. Thanks also to Jan Morten Dyrstad, David F. Hendry , Steinar Holden, Tord S. Krogh and Mikkel Myhre Walbækken for important comments and suggestions. Finally, thanks to the editors and to two anonymous referees for their comments, both critical and constructive. The numerical results in this paper were obtained by the use of OxMetrics 7/PcGive 14 and Eviews 9.5. Academic Editors: Gilles Dufrénot, Fredj Jawadi and Alexander Mihailov Received: 31 August 2016; Accepted: 13 December 2016; Published: 12 January 2017 Abstract: This paper reviews the development of labour market institutions in Norway, shows how labour market regulation has been related to the macroeconomic development, and presents dynamic econometric models of nominal and real wages. Single equation and multi-equation models are reported. The econometric modelling uses a new data set with historical time series of wages and prices, unemployment and labour productivity. -
Bibliography
Bibliography Archival Insights into the Evolution of Economics (and Related Projects) Berlet, C. (2017). Hayek, Mises, and the Iron Rule of Unintended Consequences. In R. Leeson (Ed.), Hayek a Collaborative Biography Part IX: Te Divine Right of the ‘Free’ Market. Basingstoke, UK: Palgrave Macmillan. Farrant, A., & McPhail, E. (2017). Hayek, Tatcher, and the Muddle of the Middle. In R. Leeson (Ed.), Hayek: A Collaborative Biography Part IX the Divine Right of the Market. Basingstoke, UK: Palgrave Macmillan. Filip, B. (2018a). Hayek on Limited Democracy, Dictatorships and the ‘Free’ Market: An Interview in Argentina, 1977. In R. Leeson (Ed.), Hayek a Collaborative Biography Part XIII: ‘Fascism’ and Liberalism in the (Austrian) Classical Tradition. Basingstoke, England: Palgrave Macmillan. Filip, B. (2018b). Hayek and Popper on Piecemeal Engineering and Ordo- Liberalism. In R. Leeson (Ed.), Hayek a Collaborative Biography Part XIV: Orwell, Popper, Humboldt and Polanyi. Basingstoke, UK: Palgrave Macmillan. Friedman, M. F. (2017 [1991]). Say ‘No’ to Intolerance. In R. Leeson & C. Palm (Eds.), Milton Friedman on Freedom. Stanford, CA: Hoover Institution Press. © Te Editor(s) (if applicable) and Te Author(s) 2019 609 R. Leeson, Hayek: A Collaborative Biography, Archival Insights into the Evolution of Economics, https://doi.org/10.1007/978-3-319-78069-6 610 Bibliography Glasner, D. (2018). Hayek, Gold, Defation and Nihilism. In R. Leeson (Ed.), Hayek a Collaborative Biography Part XIII: ‘Fascism’ and Liberalism in the (Austrian) Classical Tradition. Basingstoke, UK: Palgrave Macmillan. Goldschmidt, N., & Hesse, J.-O. (2013). Eucken, Hayek, and the Road to Serfdom. In R. Leeson (Ed.), Hayek: A Collaborative Biography Part I Infuences, from Mises to Bartley. -
New Working Papers Series, Entitled “Working Papers in Technology Governance and Economic Dynamics”
Working Papers in Technology Governance and Economic Dynamics no. 74 the other canon foundation, Norway Tallinn University of Technology, Tallinn Ragnar Nurkse Department of Innovation and Governance CONTACT: Rainer Kattel, [email protected]; Wolfgang Drechsler, [email protected]; Erik S. Reinert, [email protected] 80 Economic Bestsellers before 1850: A Fresh Look at the History of Economic Thought Erik S. Reinert, Kenneth Carpenter, Fernanda A. Reinert, Sophus A. Reinert* MAY 2017 * E. Reinert, Tallinn University of Technology & The Other Canon Foundation, Norway; K. Car- penter, former librarian, Harvard University; F. Reinert, The Other Canon Foundation, Norway; S. Reinert, Harvard Business School. The authors are grateful to Dr. Debra Wallace, Managing Director, Baker Library Services and, Laura Linard, Director of Baker Library Special Collections, at Harvard Business School, where the Historical Collection now houses what was once the Kress Library, for their cooperation in this venture. Above all our thanks go to Olga Mikheeva at Tallinn University of Technology for her very efficient research assistance. Antiquarian book dealers often have more information on economics books than do academics, and our thanks go to Wilhelm Hohmann in Stuttgart, Robert H. Rubin in Brookline MA, Elvira Tasbach in Berlin, and, above all, to Ian Smith in London. We are also grateful for advice from Richard van den Berg, Francesco Boldizzoni, Patrick O’Brien, Alexandre Mendes Cunha, Bertram Schefold and Arild Sæther. Corresponding author [email protected] The core and backbone of this publication consists of the meticulous work of Kenneth Carpenter, librarian of the Kress Library at Harvard Busi- ness School starting in 1968 and later Assistant Director for Research Resources in the Harvard University Library and the Harvard College 1 Library. -
The Origins of Velocity Functions
The Origins of Velocity Functions Thomas M. Humphrey ike any practical, policy-oriented discipline, monetary economics em- ploys useful concepts long after their prototypes and originators are L forgotten. A case in point is the notion of a velocity function relating money’s rate of turnover to its independent determining variables. Most economists recognize Milton Friedman’s influential 1956 version of the function. Written v = Y/M = v(rb, re,1/PdP/dt, w, Y/P, u), it expresses in- come velocity as a function of bond interest rates, equity yields, expected inflation, wealth, real income, and a catch-all taste-and-technology variable that captures the impact of a myriad of influences on velocity, including degree of monetization, spread of banking, proliferation of money substitutes, devel- opment of cash management practices, confidence in the future stability of the economy and the like. Many also are aware of Irving Fisher’s 1911 transactions velocity func- tion, although few realize that it incorporates most of the same variables as Friedman’s.1 On velocity’s interest rate determinant, Fisher writes: “Each per- son regulates his turnover” to avoid “waste of interest” (1963, p. 152). When rates rise, cashholders “will avoid carrying too much” money thus prompting a rise in velocity. On expected inflation, he says: “When...depreciation is anticipated, there is a tendency among owners of money to spend it speedily . the result being to raise prices by increasing the velocity of circulation” (p. 263). And on real income: “The rich have a higher rate of turnover than the poor. They spend money faster, not only absolutely but relatively to the money they keep on hand. -
Money Demand ECON 40364: Monetary Theory & Policy
Money Demand ECON 40364: Monetary Theory & Policy Eric Sims University of Notre Dame Fall 2017 1 / 37 Readings I Mishkin Ch. 19 2 / 37 Classical Monetary Theory I We have now defined what money is and how the supply of money is set I What determines the demand for money? I How do the demand and supply of money determine the price level, interest rates, and inflation? I We will focus on a framework in which money is neutral and the classical dichotomy holds: real variables (such as output and the real interest rate) are determined independently of nominal variables like money I We can think of such a world as characterizing the \medium" or \long" runs (periods of time measured in several years) I We will soon discuss the \short run" when money is not neutral 3 / 37 Velocity and the Equation of Exchange I Let Yt denote real output, which we can take to be exogenous with respect to the money supply I Pt is the dollar price of output, so Pt Yt is the dollar value of output (i.e. nominal GDP) I Define velocity as as the average number of times per year that the typical unit of money, Mt , is spent on goods and serves. Denote by Vt I The \equation of exchange" or \quantity equation" is: Mt Vt = Pt Yt I This equation is an identity and defines velocity as the ratio of nominal GDP to the money supply 4 / 37 From Equation of Exchange to Quantity Theory I The quantity equation can be interpreted as a theory of money demand by making assumptions about velocity I Can write: 1 Mt = Pt Yt Vt I Monetarists: velocity is determined primarily by payments technology (e.g. -
Three Dimensions of Classical Utilitarian Economic Thought ––Bentham, J.S
July 2012 Three Dimensions of Classical Utilitarian Economic Thought ––Bentham, J.S. Mill, and Sidgwick–– Daisuke Nakai∗ 1. Utilitarianism in the History of Economic Ideas Utilitarianism is a many-sided conception, in which we can discern various aspects: hedonistic, consequentialistic, aggregation or maximization-oriented, and so forth.1 While we see its impact in several academic fields, such as ethics, economics, and political philosophy, it is often dragged out as a problematic or negative idea. Aside from its essential and imperative nature, one reason might be in the fact that utilitarianism has been only vaguely understood, and has been given different roles, “on the one hand as a theory of personal morality, and on the other as a theory of public choice, or of the criteria applicable to public policy” (Sen and Williams 1982, 1-2). In this context, if we turn our eyes on economics, we can find intimate but subtle connections with utilitarian ideas. In 1938, Samuelson described the formulation of utility analysis in economic theory since Jevons, Menger, and Walras, and the controversies following upon it, as follows: First, there has been a steady tendency toward the removal of moral, utilitarian, welfare connotations from the concept. Secondly, there has been a progressive movement toward the rejection of hedonistic, introspective, psychological elements. These tendencies are evidenced by the names suggested to replace utility and satisfaction––ophélimité, desirability, wantability, etc. (Samuelson 1938) Thus, Samuelson felt the need of “squeezing out of the utility analysis its empirical implications”. In any case, it is somewhat unusual for economists to regard themselves as utilitarians, even if their theories are relying on utility analysis. -
Inside Money, Business Cycle, and Bank Capital Requirements
Inside Money, Business Cycle, and Bank Capital Requirements Jaevin Park∗y April 13, 2018 Abstract A search theoretical model is constructed to study bank capital requirements in a respect of inside money. In the model bank liabilities, backed by bank assets, are useful for exchange, while bank capital is not. When the supply of bank liabilities is not sufficiently large for the trading demand, banks do not issue bank capital in competitive equilibrium. This equilibrium allocation can be suboptimal when the bank assets are exposed to the aggregate risk. Specifically, a pecuniary externality is generated because banks do not internalize the impact of issuing inside money on the asset prices in general equilibrium. Imposing a pro-cyclical capital requirement can improve the welfare by raising the price of bank assets in both states. Key Words: constrained inefficiency, pecuniary externality, limited commitment JEL Codes: E42, E58 ∗Department of Economics, The University of Mississippi. E-mail: [email protected] yI am greatly indebted to Stephen Williamson for his continuous support and guidance. I am thankful to John Conlon for his dedicated advice on this paper. This paper has also benefited from the comments of Gaetano Antinolfi, Costas Azariadis and participants at Board of Governors of the Federal Reserve System, Korean Development Institute, The University of Mississippi, Washington University in St. Louis, and 2015 Mid-West Macro Conference at Purdue University. All errors are mine. 1 1 Introduction Why do we need to impose capital requirements to banks? If needed, should it be pro- cyclical or counter-cyclical? A conventional rationale for bank capital requirements is based on deposit insurance: Banks tend to take too much risk under this safety net, so bank capital requirements are needed to correct the moral hazard problem created by deposit insurance.