Scott Sumner  

Is The Midas Paradox monetarist or anti-monetarist?

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A little bit of each.

1. My analysis of the Great Depression is monetarist in the sense that I believe inflation and demand-side business cycles are fundamentally monetary phenomena, to be explained by analyzing changes in the supply and demand for the medium of account.

2. My analysis is anti-monetarist in the sense that I consider gold, not money, to be the most important medium of account during the interwar period. And also because monetarists focus on changes in the supply of money, whereas I focus on changes in the demand for gold. Consider this equation:

G*Vg=P*Y

Where G is the world gold stock, and Vg is the ratio of NGDP to units of gold. The unit would have been 1/20.67 ounce of gold prior to April 1933, and 1/35 ounce after February 1934. Because G increased at a fairly steady rate of roughly 2%/year, changes in NGDP must have been mostly due to changes in Vg, which you might think of as the inverse of the demand for gold.

The blogger Lorenzo did an excellent job of reviewing my book, and included this graph of the first 60% of the Great Depression:

Screen Shot 2015-12-05 at 12.02.19 PM.png
If you are wondering what caused all those zig zags in the growth rate of industrial production (and other zig zags up to 1940), then please buy my book.

Update: The graph is originally from Marcus Nunes.

PS. Over at MoneyIllusion I have another post on Ted Cruz---this time where he asks Janet Yellen about interest on reserves.


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CATEGORIES: Macroeconomics , Money




COMMENTS (5 to date)
E. Harding writes:

"If you are wondering what caused all those zig zags in the growth rate of industrial production (and other zig zags up to 1940), then please buy my book."

-I will. No doubt you'd be the best monetary historian I've read since Rothbard. Maybe better.

I still don't get why the gold stock was more important than the currency stock.

Lorenzo from Oz writes:

It was only a review of a specific element, but thanks :)

marcus nunes writes:

Scott, I´ve alerted Lorenzo to put a "Courtesy of Marcus Nunes" on the chart. He has done so!
https://thefaintofheart.wordpress.com/2011/10/06/%E2%80%9Clord-show-them-the-light/

marcus nunes writes:

Scott, The chart in this post goes to 1939 and includes the stock market:
https://thefaintofheart.wordpress.com/2013/04/23/roadmap-of-the-great-depression-with-sign-posts/

Scott Sumner writes:

Thanks E. Harding.

Lorenzo, I'm just happy to have even a partial review somewhere.

Marcus, Thanks, I added an update.

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