Bryan Caplan and David Henderson

Money

A Category Archive (65 entries)

Grade deflation, grade illusion, and academic depressions

Economics of Education
Scott Sumner
Standard monetary theory says that changes in the money supply and prices are neutral under certain circumstances, such as in the very long run, and also after monetary reforms where all contracts are automatically adjusted to the change in the... MORE

In my fire in 2007, I lost almost all my files, including the ones under the letter "R." For that reason, I thought I had lost my correspondence with Murray Rothbard. But I came across some files in my home... MORE

I don't generally get into debates over monetary "disequilibrium," as I don't find the concept to be particularly useful. It's too vague. But against my better judgment I'm going to take a stab at the debate between David Glasner and... MORE

There's a vigorous debate about the money multiplier taking place in the blogosphere. On one side is everyone from MMTers, to new monetarists, to market monetarists. On the other is Nick Rowe. And I'm sort of in the middle, but... MORE

Who Should We Revere?

Money
James Schneider
Sifting through the coins in your pocket, you will likely find many images of politicians. In some sense, this conveys the impression that government leaders are the most important figures in society. However, everyday currency can honor other contributors to... MORE

Like other legislation of that era, the Fed was a government intervention supported both by ideologically-motivated and well-meaning reformers and by the industry being regulated. Rather than being this as some sort of unique conspiracy to take control of the... MORE

Don't follow the money

Money
Scott Sumner
I'd first like to thank David for his very kind introduction.  It's an honor to be invited to do a stint as a guest blogger at one of my favorite blogs.  I do plan to keep my other blog (TheMoneyIllusion.com)... MORE

Writing op-eds and blogging is a nice way to have a few nice things and to make sure the bills stay paid. Forbes has obviously been great for me, and I've written several pieces for the Washington Examiner. I've just... MORE

There is no denying that central banks have some impact on interest rates, in both the short and the long run. But the complexity of and qualifications to that impact have been swept into a memory hole, submerging a host... MORE

Selgin on Gorton

Monetary Policy
David Henderson
One of the best writers in economics, and one of the very best thinkers in monetary economics, is University of Georgia economist George Selgin. I highly recommend his recent critical review of Gary Gorton's recent book, Misunderstanding Financial Crises. After... MORE

Robert Murphy on Bitcoin

Money
David Henderson
Bitcoin is an ingenious concept that challenges the way economists have traditionally thought about money. Its inbuilt scarcity provides an assurance of purchasing power arguably safer than any other system yet conceived. Critics argue that because of its lack of... MORE

Garett Jones argues that the growth rate of the money supply is a target--and targets are often hard to hit, while short-term interest rates are an instrument. He writes: This is known as the "instruments versus targets" distinction in macroeconomics,... MORE

From the WSJ (h/t Tyler):The Portuguese government is considering a plan to pay public workers and pensioners one month of their salary in treasury bills rather than cash after a high court ruled out wage cuts...One way to read this... MORE

Hummel on Bernanke's New Central Planning

Monetary Policy
David Henderson
The first two lectures cover the origins and history of the Fed. Mr. Bernanke identifies three primary functions of central banks: to conduct monetary policy (i.e., controlling of the supply of money by setting interest rates); to serve as lenders... MORE

Assorted Tweets: Cyprus Speed Bankruptcy Edition

Public Choice Theory
Garett Jones
1: Is the Cyprus bank levy a crude approximation of bankruptcy?  Actually, the bank levy is probably better for depositors than bankruptcy....The reason it's probably better than bankruptcy is because in return for haircuts, Cypriot banks will get cheap money from... MORE

The Hoover/Mellon Tax on Checks

Money
David Henderson
It's heartening to see that virtually everyone who has blogged on the proposed tax on bank accounts in Cyprus has pointed out that this is a set-up for a run on Cyprus banks. I have little to add to that... MORE

Hummel on Fed's Billion-Dollar Losses

Monetary Policy
David Henderson
The last temptation is the greatest treason: To do the right deed for the wrong reason. --T.S. Eliot, "Murder in the Cathedral" I was reminded of this quote when reading an e-mail Jeff Hummel sent to a few of his... MORE

Expanding Megabanks: Is Impatience the Cause?

Public Choice Theory
Garett Jones
From Tuesday's Wall Street Journal:Some, like Citigroup Inc. and Bank of America Corp. have embarked on diets of their own.  On the whole, though, the financial system is more concentrated than before the crisis. And Santander, the largest Euro-area bank with... MORE

Is Fiat Money a Bubble?

Money
Garett Jones
I thought the mainstream view was that fiat money was--in most mainstream theories and possibly in practice--a bubble.Jean Tirole (Econometrica, 1985) defines a bubble (it's a conventional definition among economists), and notes that Samuelson's excellent model of money fits that... MORE

As always, I enjoyed the hour.  Hope you do as well.I suspect it was this post that led to the invitation.  I really do believe Fisher's 1933 Econometrica article offers a more complete model of the entire business cycle process... MORE

Bailouts are for Bondholders

Public Choice Theory
Garett Jones
During the worst days of 2008, something strange happened.  During the Eight Days of Terror, the S&P 500 fell by 23% but there were no loud calls for the government to guarantee the value of stocks (Aside: TARP was signed... MORE

Net Worth Makes You Trustworthy

Macroeconomics
Garett Jones
Eli Dourado has a great post on whether we can believe we're still in the short run (see Bryan's critique here). Along the way, Dourado calls into question the sticky debt channel, correctly noting that according to official estimates, household... MORE

Future money and today's NGDP

Monetary Policy
Garett Jones
In times of trouble, I often turn for comfort to the Cagan money demand model.  Philip Cagan, who passed away in June of this year, was a monetarist who moved the ball down the court.  Back in the 50's, he... MORE

Debt: The Stickiest Price of All

Macroeconomics
Garett Jones
Economists tell a lot of stories about how a fall in dollar spending can hurt the real economy.  And we should be forced to tell these stories--we shouldn't take it for granted that a fall in spending causes a fall... MORE

Hummel on Graeber

Money
David Henderson
Jeff Hummel sent me a critique of David Graeber's book, Debt: The First 5000 Years. Jeff has given me permission to run an edited version. Here it is: I have read David Graeber's Debt: The First 5000 Years thoroughly and... MORE

Anna J. Schwartz, RIP

Money
David Henderson
Anna J. Schwartz, who co-authored A Monetary History of the United States, 1876-1960 with Milton Friedman, died today. She was 96. Their book was a tour de force. They spent years on it in the late 1950s and early 1960s.... MORE

Do Economists Study Money?

Money
David Henderson
Non-economists often think that "economists study money." The reality, though, is that most academic economists hardly think about money at all. Whether we're talking about tariffs, wages, Social Security taxes, or pollution, the analysis (though often couched in dollar terms... MORE

George Selgin on "The Bernank"

Monetary Policy
David Henderson
George Selgin has an excellent commentary on Ben Bernanke's maiden lecture on monetary policy at George Washington University. Not only does George dispel myths that most people believe, but also he dispels myths that I believed. An incomplete list of... MORE

MMT

Money
Arnold Kling
A reader asked me for my thoughts on so-called Modern Monetary Theory, as described here, for example. As I understand it, the central dogma of MMT is that a government that prints its own currency and accepts that currency as... MORE

An Answer to a Monetary Riddle

Money
David Henderson
Last quarter, I received the following "riddle" from a student in my class: It's a slow day in some little town........ The sun is hot....the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.... MORE

NYT's Jeff Sommer's Shoddy Reporting

Macroeconomics
David Henderson
I've been busy in the last week with end-of-quarter classes and two speeches, the latter of which I'll report on today or tomorrow. Which is why I hadn't replied to Jeff Sommer's criticism of me in the New York Times.... MORE

Bill Keller's Slip

Monetary Policy
David Henderson
In an editorial in yesterday's New York Times, Bill Keller decries the competition that newspapers get from independent sources on the web. That's not how he poses it, of course. No. What he sees is a lot of loud, outlandish... MORE

David Graeber Interview

Economic History
Arnold Kling
Worth a listen. In fact, he almost endorses my most wrong view!! He says that currency and markets emerged from plunder. However, he does say that there were early trading nations that were not plundering empires. He also has provocative... MORE

On the History of Money

Money
Arnold Kling
David Graeber writes, Anthropology is full of examples of societies without markets or money, but with elaborate systems of penalties for various forms of injuries or slights. And it is when someone has killed your brother, or severed your finger,... MORE

Gibson on Gold

Money
David Henderson
San Jose State University economist Warren Gibson has an excellent article, "Gold and Money," in the latest Freeman. He lists a number of claims about gold, both positive and negative, and proceeds to do a "True, False, Uncertain, with explanation"... MORE

An Indispensable Book

Money
Arnold Kling
I've read through Perry Mehrling's The New Lombard Street, and I need to read it again. Meanwhile, some thoughts. 1. Mehrling is an outstanding and engaging intellectual historian, but he fails to appreciate financial crisis porn. I'll explain below. 2.Tyler... MORE

Benjamin or Benny?

Money
David Henderson
I don't get to see $100 bills very often and so I've never paid attention to the picture of Ben Franklin on it. But the controversy about the U.S. government messing up on $100 bills got me looking more closely.... MORE

End the Penny

Money
David Henderson
Here's an entertaining criticism of the penny. In 2006, I supervised a thesis in which my student made the case for eliminating the penny. The author, Stephanie King, was at the time a Major in the U.S. Marine Corps. A... MORE

How Toggling Works (I Think)

Macroeconomics
Arnold Kling
Bryan asks how I think that the Fed can make big changes in inflation regime but not make small changes within a regime. Again, my thinking is based almost entirely on my reading of postwar U.S. monetary history, which went... MORE

Monetary Theory Question

Money
Arnold Kling
There has been a lot of drama among monetary theorists in the blogosphere, and I have been waiting for Scott Sumner to join the fray. He writes, Thus the question is never whether low rates unfairly subsidize borrowers, or whether... MORE

Bryan: Define Money

Macroeconomics
Arnold Kling
Bryan writes, Out of all of Arnold's macroeconomic views, only one strikes me as truly absurd: His skepticism about the ability of central banks to affect nominal GDP and other nominal variables. Here is my problem. Nominal GDP is measured... MORE

Still Jackasses

Macroeconomics
Arnold Kling
Stephen Williamson writes, From a New Monetarist point of view, a key element of the financial crisis relates to the scarcity of liquid assets. There is one type of liquid asset, which is outside money. Currency and bank reserves play... MORE

Macro Doubtbook, Installment 6

Money
Arnold Kling
Here is the long-awaited section on monetary theory. If you ask me the question, what will happen if the Fed stops paying interest on reserves, my answer would differ from Scott Sumner's. I would say, "Not much will happen in... MORE

Time for Cryptonomicon

Money
Arnold Kling
Martin Feldstein writes, In the end, Greece, the eurozone's other members, and Greece's creditors will have to accept that the country is insolvent and cannot service its existing debt. At that point, Greece will default. Feldstein points out that there... MORE

Friedman and Schwartz Speak Truth about Power

Monetary Policy
David Henderson
One of my favorite parts of Milton Friedman's and Anna J. Schwartz's modern classic, A Monetary History of the United States, 1867-1960, is a lengthy footnote on pp. 463-64. It's their explanation of why they think the reported amount of... MORE

What Is Money Velocity?

Money
Bryan Caplan
A key feature of the financial crisis was a massive fall in the velocity of money.  But what exactly is "money velocity"?  By definition, V=PY/M.  In English: Velocity=Nominal Income divided by the Money Supply.  When asked for some intuition, economists... MORE

Arnold Kling on Money

Money
David Henderson
In his post today on money, Arnold writes: However, as you know, I prefer to think of money as designed top down, to serve the needs of government. But shouldn't what you "prefer to think" count for literally zero? What... MORE

Money--Designed or Emergent?

Economic History
Arnold Kling
George Selgin writes, Economists generally take for granted, if only tacitly, a teleological view of money's historical development, according to which it first takes the "primitive" form of mundane commodities such as cowrie shells and cacao seeds, and then advances... MORE

More Scott Sumner

Macroeconomics
Arnold Kling
Here. after July 2008 there were many other indicators that money was far too tight. About this time the dollar began rising sharply against the euro; and commodity prices began a sharp decline. Real interest rates rose from less than... MORE

M as a weighted average

Money
Arnold Kling
How does monetary policy work? Think of it this way: Fiscal policy adds or subtracts government liabilities. Monetary policy swaps government liabilities.... MORE

Money as a Store of Value

Macroeconomics
Arnold Kling
A commenter asks how I reconcile my assertion that money is a store of vaue with my view that macroeconomics should not emphasize the role of money as a store of value. It is only the second view--that money is... MORE

Monetary Theory, Once Again

Macroeconomics
Arnold Kling
Josh Hendrickson and a reader raise interesting questions.... MORE

Whose Macro is Bizarre?

Macroeconomics
Arnold Kling
Thanks to Mark Thoma for keeping the debate going. In a defense of what Paul Krugman would call Dark Age Macroeconomics, David Beckworth unleashes that most medieval of weapons, the dreaded Vector Autoregression. More on that below the fold. Also... MORE

Responses to Two Critics

Macroeconomics
Arnold Kling
I have been making the following claims about macro.... MORE

Read the whole thing. He likes the Recalculation story, which he points out he articulated last December. But he doesn't really buy my bizarre monetary theory. He writes, "I see the Fed as controlling nominal gdp but not always real... MORE

Bizarre Monetary Theory, Once Again

Macroeconomics
Arnold Kling
Bill Woolsey writes, it is not difficult to see that a large shift in the composition of demand would result in larger shifts in resource utilization, higher structural unemployment, and slower growth in the productive capacity of the economy. For... MORE

My Bizarre Monetary Theory, Continued

Macroeconomics
Arnold Kling
Before I respond to Bryan's comments, let me first recommend the two Scott Sumner papers that he mentions. This paper develops a theory that cultural values drive economic policy, which in turn drives economic outcomes. It is an interesting complement... MORE

I Deny (the significance of) MV = PY

Macroeconomics
Arnold Kling
Jeffrey Rogers Hummel writes, Orthodox monetarists attributed such shocks to declines in the rate of monetary growth, whereas traditional Keynesians blamed declining autonomous expenditures. Both of these sources are captured in the well known equation of exchange: MV = Py,... MORE

Various Links

Monetary Policy
Arnold Kling
I've been away, mostly in Prague (where the big economic question is why so many older buildings have so many fancy details. My answer is that there must have been a very unequal distribution of wealth, so that rich folks... MORE

George Selgin on Free Banking

Money
Arnold Kling
He says in an interview, Free banks compete, as it were, on an even playing field in issuing paper IOUs, which are basically what banknotes are. They have to redeem those IOUs on a regular basis: The competition among different... MORE

The Dollar as Anchor

Monetary Policy
David Henderson
Lots of people lately have been talking about how lousy the dollar is as a store of value. I'll repeat the offer I made in a recent book review in Regulation, in response to an economist's claim that government had... MORE

This lecture looks at private monetary instruments and their relationship to government monetary instruments.... MORE

The Origins of Money

Economic History
Arnold Kling
In contrast to my militaristic account, we have Nick Szabo: Local but extremely valuable trade was, this essay argues, made possible among many cultures by the advent of collectibles, by the time of the Upper Paleolithic. Collectibles substituted for otherwise... MORE

George Selgin on Free Banking

Finance: stocks, options, etc.
Arnold Kling
He talks with Russ Roberts, who asks skeptical questions. Selgin thinks that one can have sound unregulated, uninsured banking without reserve requirements of 100 percent. He thinks that bank owners need to have significant capital at risk. Once upon a... MORE

Walter Block, arguing against Bryan, says that fractional reserve banking is fraudulent. There is some chance that when you make your deposit you will not get your money back, and instead someone else will have taken title to it. Therefore,... MORE

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