Quotes from “Costs and Consequences of Inflation”

By Axel Leijonhufvud (1975)

• Monetary exchange systems have not evolved out of non-monetary exchange (“barter”) systems but out of non-exchange systems. . . . “Custom and Command”, in the terms of Classical Economics, or “Reciprocity and Redistribution”, in those of Anthropology, – not barter exchange – are the alternatives to monetary exchange.#
  EconomicsHistory
• In largely non-monetary economies, important economic rights and obligations will be inseparable from particularized relationships of social status and political allegiance and will be in the same measure permanent, inalienable, and irrevocable.#
  EconomicsHistory
• There can be no epistemological guarantee that interactions between the “economic”, the “political”, and the “social” spheres of the system we study will be negligible. . . . It may be the case that in the world we inhabit, before the “near-neutral” adjustments can all be smoothly achieved, “society unlearns to use money confidently” and reacts by restrictions on “the circles people shall serve, the prices they shall charge, and the goods they can buy.” If such reactions are in fact endogenous to the social system, we misidentify the consequences of inflation to the extent that we regard them as fortuitous “political” events exogenously impinging on “the economy.”#
  EconomicsMethodology
• The Law seeks to provide a stable framework of social interaction within which people can form expectations about the outcomes of their actions sufficiently firm, if not precise, to allow them to plan their conduct accordingly.#
  LawExpectations
• If our political institutions allow unemployment to grow, the feedback will be in unmistakable clear text: You’d better do something about unemployment or else…! If they err on the side of inflation, there will be widespread and general complaining about rising prices to be sure, but that diffuse message is quite drowned in the rising babble of specific demands and concrete proposals from identifiable interest groups – to compensate me, to regulate him, to control X’s prices, and to tax Y’s “excess profits,” etc., etc. The political demands triggered by unemployment are to reduce unemployment; those triggered by inflation are for the most part not obviously identifiable as “instructions” to stop inflating. There is an informational bias to the process.#
  Economics
• My own “hunch” with regard to present day conditions would be that the price distortions [from inflation] are apt to be less systematic than in the Austrian view but nonetheless serious.#
  Economics
• To assume that agents generally possess the independent information required to filter the significant messages from the noise would, I think, amount to assuming knowledge so comprehensive that reliance on market-prices for information should have been unnecessary in the first place.#
  Economics
• Finding what variables will give a good proxy for the excess supply of labor and thus provide an equation predicting wage-inflation is one research task. Finding a stable reduced form relating inflation and unemployment is a completely different one.#
  Economics
• One lesson of the last several years is that human capital is virtually the only reasonably reliable store of value in periods like the present. Is it just coincidence that active academics (not the emeriti), media commentators and “intellectuals” in general think the rest of society makes too much fuss over inflation as a social problem?#
  Sociology
• The Samuelsonian “necessity” of imagining a social welfare function follows only from prior acceptance of the “necessity” of conceptualizing any problem of policy in choice-theoretical terms.#
  EconomicsMethodology

Wesley Mitchell, “The Role of Money in Economic History” (1944)

• When money is introduced into the dealings of men, it enlarges their freedom. . . . By virtue of its generalized purchasing power, money emancipates its users from numberless restrictions upon what they do and what they get. As a society learns to use money confidently, it gradually abandons restrictions upon the places people shall live, the occupations they shall follow, the circles they shall serve, the prices they shall charge, and the goods they can buy. Its citizens have both a formal and a genuine freedom in these respects wider than is possible under an organization in which services and commodities are bartered. Adam Smith’s “obvious and simple system of natural liberty” seems obvious and natural only to denizens of a money economy.#
  EconomicsMoney