Perry Mehrling

Quotes From

“What Is Monetary Economics About?” (2000)

• Although the exchange rate and the price level are both prices of money, they are very different kinds of prices. Central banks could and did try to fix exchange rates by standing ready to buy and sell gold, but never could they or did they try to fix the price level by standing reading to buy and sell the relevant basket of commodities. #
• Even though in principle the gold standard central banker stood ready to buy and sell gold at a fixed price, swelling or depleting his gold reserve depending on the balance of demand and supply, in practice he operated by manipulating the discount rate in order to obviate the need for substantial gold flows.#

“The Inherent Hierarchy of Money” (2012)

• What counts as money and what counts as credit depends on your point of view, which is to say that it depends on where in the hierarchy you are standing. . . . Best therefore not to reify the concepts of money and credit, and to rest instead with the more general idea that the system is hierarchical in character.#
• From the point of view of the [monetary] system as a whole, every liability is someone else’s asset. That means that the entire pyramid would disappear if we consolidated balance sheets, as most standard aggregative macro models do, to one extent or another. . . . By contrast, . . . important macroeconomic variables, such as interest rates and GDP, are affected both by the gross quantity of inside credit and also by who is issuing it and who is holding it, which is to say by the precise location of that inside credit within the hierarchy of money and credit.#
• In the expansion phase, the qualitative difference between credit and money becomes attenuated; credit expands while the hierarchy flattens. In the contraction phase, the distinction between more money-like and less money-like forms of credit is re-established; credit contracts while the hierarchy steepens.#
• Credit is a promise to pay money, and relaxation today comes at the price of a greater constraint some time in the future. The important point is that the system involves at all times a balance between discipline and elasticity, with sometimes one and sometimes the other aspect serving as the more dominant feature. #
• The prices in the simple hierarchy are three: the exchange rate (the price of money in terms of gold), par (the price of deposits in terms of currency), and the rate of interest (the price of securities in terms of deposits or currency, assuming par). These prices are the quantitative link between layers of qualitatively differentiated assets.#
• The whole point of deposit par is that it is a price that does not change, and under a fixed exchange rate system the same is true internationally. The banking system thus is especially vulnerable whenever the hierarchy steepens because it is bound to defend a fixed price between layers of an increasingly differentiated hierarchy.#