- Curriculum Vitæ
My research centers on the preconditions of monetary exchange, the practice of monetary policy, and their relevance to social cooperation.
Spring 2016 – The Independent Review, vol. 20, no. 4.
Though Bitcoin currently enjoys a healthy niche, the aspirations of many in the project are grander: to supplant the existing regime of fiat currencies with cryptocurrencies, and to do so outside of normal political channels. Its primary practical obstacle is its purchasing power volatility, arising from a rigid money stock in the face of wide swings in demand. Nevertheless, the historical example of gold, another (much more successful) money commodity with a more or less rigid supply, illuminates the institutional prerequisites for purchasing power stability, economic efficiency, and sustained growth – namely a market of financial intermediaries whose liabilities denominated in the base money themselves circulate as media of exchange. This paper discusses potential benefits and hurdles to establishing financial intermediation in cryptocurrency, as well as the possibility of managing the money supply to create a stable purchasing power cryptocurrency without the need for intermediation at all. Such schemes ultimately require an existing market of intermediaries in order to provide any benefits, the emergence of which governments are for the moment well-positioned to prevent.
Discussions of adjustments to the quantity of money tend to take for granted the method by which new money enters the economy. Milton Friedman, for example, famously assumed the central bank distributed money directly to agents via helicopter in order to abstract away from relative price effects, in contrast to the real world, where expansion almost always takes place through financial markets. This paper compares the distribution and relative price effects of expansion by helicopter and through financial markets. The distribution effects of the former will in fact be more severe than those of the latter, except in the sort of representative agent model Friedman used. This result is illustrated using an agent-based model in order to introduce heterogeneity in the demand for cash balances. Finally, we argue the helicopter metaphor is relevant to the emerging literature on money supply norms for crypto-currencies, which – unlike any modern currencies – must distribute changes in the money supply without the use of financial markets.
This paper relates Smith’s dictum that “the division of labor is limited by the extent of the market” to evidence from anthropology and sociobiology to offer an increasing returns model of the evolution of exchange institutions from autarky, through various intermediate stages, and finally to monetary exchange as the extent of the market grows. Exchange institutions will involve a tradeoff between fixed and marginal cognitive costs: up-front investment in increasingly higher fixed-cost exchange institutions lowers marginal costs of exchange, resulting in increasing returns to the division of labor. Those costs account for the persistence of more or less direct barter in more primitive societies, despite the “inevitability” of monetary exchange that seems to be a feature of traditional models of the origin of money. In identifying the relevant fixed costs of money and its institutional substitutes throughout the world, the paper advances a framework through which the successes and failures of modern development can be understood.
The eclipse of capital-theoretic explanations of depressions by more straightforward monetary explanations in the decades following the Great Depression has obscured important questions that were asked by the older theory, even if it did not answer them satisfactorily. This paper offers an account of asset bubbles based in the dynamics of the asset’s moneyness, or liquidity. In doing so, it subsumes both the attribution of depression to an excess demand for money (and explains how this can be true despite central banks’ scrupulousness in avoiding falls in the money stock), and the observation of systematic capital misallocation over the course of the business cycle.
Giving Credit where Credit is Due: The Benefits of Bank Money — With Scott Burns
Economists have long debated the relationship of bank credit to the business cycle. The attribution of economic cycles to the “inherent instability” of private bank money has been advanced by a number of prominent economists throughout history including Irving Fisher and University of Chicago icons like Frank Knight, Henry Simons, and a young Milton Friedman. The recent financial crisis has reignited these calls to abolish fractional reserve banking through “narrow banking” or “sovereign money” proposals. This paper rejects this notion and argues that the “pyramid of credit” plays a fundamental role not only in stabilizing economic activity but also in fostering economic development. The instability commonly attributed to pyramiding can be largely mitigated by policy changes far less drastic than the abolition of bank money, and any residual instability is almost certainly worth the dramatic benefits in normal times.
The most important thing a student can gain from an economics class is the ability to think like an economist: to be able to look at some event in the world and know how to interpret it using economic theory. More than familiarity with a few (or even a great many) models, it requires a strong economic intuition for knowing which model to apply to a given situation and why it’s appropriate. . . .