Topic: Macroeconomics
Quotes
Allan Meltzer, “Monetarist, Keynesian, and Quantity Theories” (1977)
- Keynesians, like Keynes, treat all cyclical unemployment as “involuntary,” a loss of output to society and, if not compensated, a loss of income to the individuals who are unemployed. This reasoning ignores the distinction between income and current receipts basic to the model of time preference that economists use. Monetarists, like mainstream classical economists, distinguish between current receipts and income and regard much of the unemployment observed during mild cycles as a consequence of fluctuations in receipts. Cyclical unemployment alters permanent or anticipated income streams and consumption only if fluctuations in receipts cause a reevaluation of the mean level or variability of earnings from particular occupations and in the aggregate.#
- Changes in the price level induce substitution between new production and existing assets as well as between domestic and foreign assets and output.#
Michael Bordo & Anna Schwartz, “Monetary Policy Regimes and Economic Performance” (1999)
- The Fisher effect – the correlation between nominal interest rates and expected inflation – is hard to detect before 1914 because inflation was a white noise process whereas, later in the twentieth century, when inflation became more persistent, it became more apparent#
- Adjustment to balance of payments disturbances was greatly facilitated by short-term capital flows. Capital would quickly flow between countries to iron out interest rate differences. By the end of the nineteenth century the world capital market was so efficient that capital flows largely replaced gold flows in effecting adjustment.#
Posts
Does Capitalism Require Growth?
Recently I made a post in response to a passage from David Graeber’s Neoliberalism, or the Bureaucratization of the World. Capitalism itself – industrial capitalism at least – has had a very brief historical run. During a mere 200 years, however, it has nonetheless shown a remarkable ability to come up with . . .
Summer Fashion and Inflation: A Practical Case for Targeting NGDP
Most central banks around the world have a price stability mandate, and since the international monetary system regained its footing on a fiat basis after the inflations of the 1970s, that is mostly understood to mean a low inflation target. Over the past couple decades though, a growing number of . . .
New Inflation Numbers are a Huge Win for the Quantity Theory
After Covid, inflation in the US – and worldwide – soared to levels not seen since the 1970s. And during that time, we’ve been treated to a steady stream of proclamations that economists were blindsided by it. And as economists argued about supply-side vs demand-side explanations, more off-the-wall theories took the . . .
Finance in a Theory of Money
Orthodox monetary theory is kneecapped by an overly concrete conception of money, which has led in recent decades to a reaction of moneyless models of monetary policy. By contrast, this paper generalizes monetary theory in terms of the plans of economic agents to hold and dispose of liquidity in a . . .
2022 Inflation Explainer
Inflation in the United States is at about 7%. How did it get there? What does this mean for our economy and our wallets?
Unmixing the Metaphors of Austrian Capital Theory
A complement of metaphors inherited from the classical era has held back progress in Austrian capital theory (ACT). In particular, the attachment to circulating capital as the paradigmatic capital good, largely motivated by the business cycle theory, has locked ACT into a nonoperational point-output model of production. This paper draws . . .
Let's Move Past the Hayek-Keynes Debate
The debate between Hayek and Keynes on the question of depressions still looms large in the economics profession, at least in the way it’s taught and communicated, and – in some corners – still in the way it’s conducted. Formative as that debate was, being several decades prior to the . . .
Bubbles and Broad Monetary Aggregates: Toward a Consensus Approach to Business Cycles
A challenge for quantity-theoretic explanations of business cycles is that recessions manifest despite central banks’ scrupulousness to avoid falls in monetary aggregates, a fact which would seem to indicate a structural explanation. This paper argues that a broader and theoretically richer Divisia aggregate – which reflects changes in financial market . . .
What's Radical about MMT? An Attempt to Pin Down MMT on Public Finance
People from Scott Sumner to Paul Krugman have complained that MMT is hard to argue against because it’s hard to say what the argument even is. Much of the discussion has been a proxy for policy disagreement. So without any claim to originality, I’m going to attempt to break down . . .
The Importance of Units in Economics
One basic logical principle that gets emphasized in the physical sciences, but – oddly – not in economics, or even in elementary math, is the importance of carrying through the units in an analysis. Sometimes this does pop up in limited form – for example the occasional discussion about whether . . .
Against Savings: A Suggested Exposition of the Markets for Money and Credit
The notion of savings in economics has a variety of mutually incompatible meanings. This paper goes through these various meanings and argues that, for the sake of clarity, it can and should be replaced with more precise terms. The paper then offers an “augmented” loanable funds model. Unlike the standard . . .
Cryptocurrency and the Problem of Intermediation
The volatility of Bitcoin has caused many to dismiss its potential. Bitcoin is, however, very similar to another money commodity with an essentially rigid supply that saw much greater historical success: gold. The paper considers the factors that allowed currencies on the gold standard to adjust their short-run nominal supply . . .
Smart Contracts: Killer Enabler for Stable Value
Piers writes that stable-value cryptocurrencies are necessary for smart contracts to take off. I’d like to stake out the reverse claim: that smart contracts are necessary for stable-value crypticurrencies to take off. Background on the Stablecoin Problem I’ve argued in the past that fractional reserve banking is an essential part of a . . .
Monetary Theory as a Prototype for a Theory of Civilization
Big questions can only be competently approached from a specialized research program. Here’s how I see my own research program – monetary theory – informing a broader theory of civilization. Coordination and Extended Cognition The most obvious relevance of monetary economics to a theory of civilization is the coordinating potential of the . . .
Aggregate Demand Spillovers Aren't Coherent
A number of models of increasing returns and path dependence in international trade and development involve the idea of aggregate demand spillovers (e.g. Shleifer & Vishny 1988) or externalities (e.g. Blanchard & Kiyotaki 1987). Murphy, Shleifer, & Vishny (1989), for example, take the Shleifer-Vishny model and conclude that “big push . . .
Helicopters and the Neutrality of Money
Models of monetary expansion, following Friedman (1969), tend to abstract away from the relative price effects of monetary policy by assuming that the central bank distributes money directly to agents via helicopter. However, in light of the recent entertainment of helicopter drops as a potential monetary policy tool, this paper . . .
More Rents, Less Growth
The abysmal growth record of Russia after the fall of Communism is supposed to cast a pall over market-led reforms. What’s in the way? Austerity and neoliberalism or something, if you go by the word on the street. The New York Times in fact answered the question brilliantly just the . . .
Nozick and Fractional Reserve Banking
Rothbardian critics of fractional reserve banking (FRB) tend to use natural-rights-esque arguments, even when not explicitly invoking natural rights. That is, they take for granted not only the perspicuity of some definition of property, but also the obviousness of its application to any situation. Hülsmann, for example, argues that, “on . . .
The Unit of Account Is Special; The Medium Of Exchange Is Not
Leland Yeager’s paper “Essential Properties of the Medium of Exchange” is an attempt to draw a line – practically, if not in principle – between money and non-money. The two categories, he argues, behave very differently in response to excess or deficient demand: non-money will adjust its price or yield, . . .
Confidence in the Pyramid: Speculation, Calculation, and Stabilization in Hayek’s Monetary Dilemma
Winner of the Mont Pelerin Society’s 2012 Hayek Essay Contest. The essay first discusses the weaknesses of national central banking, and how those flaws are corrected in both free banking and an international central bank. Second, it draws from Hayek’s wider economic and political work to evaluate both alternatives according . . .