I have promised to write an article about monetary explanations for the Great Depression for the Danish libertarian magazine Libertas (in Danish). The deadline was yesterday. It should be easy to write it because it is about stuff that I am very familiar with. Friedman’s and Schwartz’s“Monetary History”, Clark Warburton’s early monetarist writings on the Great Depression. Cassel’s and Hawtrey’s account of the (insane) French central bank’s excessive gold demand and how that caused gold prices to spike and effective lead to an tigthening of global monetary conditions. This explanation has of course been picked up by my Market Monetarists friends – Scott Sumner (in his excellent, but unpublished book on the Great Depression), Clark Johnson’s fantastic account of French monetary history in his book “Gold, France and the Great Depression, 1919-1932” and super star economic historian Douglas Irwin.
Kevin Murphy and I were invited to speak at a memorial session for Gary Becker at the Mont Pelerin Society meetings in Hong Kong yesterday. My remarks focused on the time Gary spent each year at the Hoover Institution and on his foray into presidential politics, much like I wrote in this post, but I also was asked to delve into macro which is quite interesting
Gary wrote several good papers on macro back in the 1950s. In a 1952 paper with William Baumol, coming out of his undergraduate days at Princeton, Gary defended the classical economists showing that they were not nearly as naïve as Lange and Keynes claimed. Then in a 1957 paper with Milton Friedman, he criticized empirical tests of the Keynesian consumption function, and followed up a year later with a reply to Lawrence Klein who reacted angrily to the criticism.
The NYT editorial board is concerned about the shortage of kidneys for transplants. As one might expect, the most obvious solution to the problem is automatically dismissed:
While some argue that the way to reduce the growing shortage is to pay living donors for kidneys, either in cash or government benefits, there are many ways to increase the supply without paying for human organs, which is prohibited by the 1984 National Organ Transplant Act and generally opposed by the World Health Organization.
Most of the NYT editorial focuses on technical issues (e.g., how to assure that organs are not wasted) but there is some limited attention to incentives. Some proposals are modest (e.g., covering the expenses incurred by live donors). But as the benefits increase (e.g., proposals for “a tax credit, college tuition, early access to Medicare or a contribution to a retirement fund”) the NYT’s enthusiasm disappears for a…
In his classic paper “Information Costs, Pricing, and Resource Unemployment,” Armen Alchian explains how the absence of full information about the characteristics of goods and services, and about the prices at which they are available leads to a variety of phenomena that are inconsistent with implications of idealized “perfect markets” at which all transactors can buy or sell as much as they want to at known, market-clearing, prices. The main implications of less than full information are the necessity of search, less than instantaneous price adjustment to changes in demand or cost conditions, the holding of (seemingly) idle or unemployed inventories, queuing, and even rationing. The paper was originally published in 1969 in the Western Economic Journal (subsequently Economic Inquiry) and was republished in a 1970 volume edited by Edmund Phelps, Microeconomic Foundations of Employment and Inflation Theory. It is included in The Collected Works of…
I lost a good 15 minutes of my life that I will not get back on my deathbed listening to some monetary cranks at a Meet the Candidates forum last night for the New Zealand general election.
Monetary cranks advocate boundless inflation and credit expansion as the patent medicine for all our economic ills:
those who have Found the Light about Money take up their pens and write, with a conviction, a persistence and a devotion otherwise only found among the disciples of a new religion.
It is easy to scoff at these productions: it is not so easy always to see exactly where they go wrong. It is natural that practical bankers, vaguely conscious that the projects of monetary cranks are dangerous to society, should cling in self-defence to the solid rock, or what they believe to be so, of tradition and accepted practice. But it is not open to the detached student of economics to take refuge from dangerous innovation in blind conservatism.
D.H. Robertson (1928)
Listening to these monetary cranks in the audience last night rates with the worst movies I have ever ever seen for time I want back my deathbed. I think the worst movie I have ever seen was Absolute Beginners starring David Bowie. After that it, might be Last Tango in Paris.
These particular monetary cranks with their obsessions about factional reserve banking are from the social credit party in New Zealand. They are followers of Major C.H. Douglas, whom Keynes referred to as a:
private, perhaps, but not a major in the brave army of heretics
Social credit and other monetary cranks believe that all the world’s problems will be sold if the reserve bank prints money and they seem to think that was really easy because there is a fractional reserve banking system.
No one in the room who knew better wanted to lose more time that they wanted back on their deathbed explaining why printing money doesn’t make you richer. The “money is wealth” error is the defining affliction of the monetary crank.
The good economist will know that money creation is no short-cut to wealth. Only the production of valued goods and services in a market which reflects the consumer’s willingness to pay can relieve poverty and promote prosperity. A people are prosperous to the extent they possess goods and services, not money. All the money in the world—paper or metallic—will still leave one starving if goods and services are not available.
Obviously, none of them were persuaded by the quantity theory of money: if you increase the supply of money without a matching increase in the rate of real growth in the production of goods and services, you’ll have more money chasing the same amount of goods so prices will go up. It’s called inflation. Printing money creates inflation.
There is a school of thought in economic school, the Austrian school of economics, does get excited about fractional reserve banking. The reason it does is to explain how fractional reserve banking creates inflation and promotes the business cycle.
A cycle of booms and busts is not looked upon as a good thing by the Austrian school of economics.
The Austrian school wants to get rid of fractional reserve banking as a way of reducing inflation and reducing the possibility of a loose monetary policy causing booms and busts in the economy.
These monetary cranks from social credit party honestly believed that printing more money will make you wealthier. Thankfully no one asked them to explain their position.
A few supporters of the monetary cranks in the audience asked other members of their views on the ideas of these monetary cranks. Sensibly, they all gave short answers that did not provoke them further and waste more of their precious life listening to them talk nonsense.
If printing money was a winner, as with any populist policy that has a half a chance of working, the parties of the centre-left and centre right would be all over it like flies to s…
I have regrouped the series of articles on the ABCT. The present post is subjected to modification and improvement over time, with my readings on the empirical works on the ABCT.
Why Evolution is True is a blog written by Jerry Coyne, centered on evolution and biology but also dealing with diverse topics like politics, culture, and cats.
“We do not believe any group of men adequate enough or wise enough to operate without scrutiny or without criticism. We know that the only way to avoid error is to detect it, that the only way to detect it is to be free to inquire. We know that in secrecy error undetected will flourish and subvert”. - J Robert Oppenheimer.
Utopia, you are standing in it! 
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