Money and Government: The Past and Future of Economics

Description

A critical examination of economics’s past and future, and how it needs to change, by one of the most eminent political economists of our time   The dominant view in economics is that money and government should play only a minor role in economic life. Economic outcomes, it is claimed, are best left to the “invisible hand” of the market. Yet these claims remain staunchly unsettled. The view taken in this important new book is that the omnipresence of uncertainty makes money and government essential features of any market economy.   Since Adam Smith, classical economics has espoused nonintervention in markets. The Great Depression brought Keynesian economics to the fore, but stagflation in the 1970s brought a return to small-state orthodoxy. The 2008 global financial crash should have brought a reevaluation of that stance; instead the response has been punishing austerity and anemic recovery. This book aims to reintroduce Keynes’s central insights to a new generation of economists, and embolden them to return money and government to the starring roles in the economic drama that they deserve. Cover......Page 1 Half Title......Page 2 Title......Page 4 Copyright......Page 5 Dedication......Page 6 Contents......Page 12 List of Figures......Page 14 Preface......Page 18 i. Unsettled Issues......Page 22 ii. The Culprits......Page 25 iii. A Brief Sketch of the Book......Page 29 Appendix I.1: Ideas, Vested Interests and Cycles......Page 32 Part One History of Economic Thought......Page 40 i. The Classical Dichotomy......Page 42 ii. The Origins of Money......Page 44 iii. The Value of Money......Page 46 iv. Creditors and Debtors......Page 48 v. The Origins of the Quantity Theory of Money......Page 53 vi. The Demand for Money......Page 56 vii. Money, the Great Deceiver......Page 57 viii. Conclusion......Page 59 2. The Fight for the Gold Standard......Page 61 i. Prelude to the Gold Standard: the British Recoinage Debate of the 1690s......Page 62 ii. Nineteenth-century Monetary Debates: An Overview......Page 65 iii. Bullionists versus the ‘Real Bills’ Doctrine......Page 66 iv. Currency School versus Banking School......Page 70 v. Bimetallism......Page 71 vi. How Did the Gold Standard Actually Work?......Page 73 i. The Quantity Theory of Money: The Two Branches......Page 81 ii. Fisher’s Santa Claus......Page 83 iii. Knut Wicksell’s Credit Money version of the QTM......Page 88 iv. Was Wicksell a Quantity Theorist?......Page 91 Appendix 3.1: Fisher’s Equation......Page 92 i. Introduction......Page 94 ii. The Fertile State of the Mercantilists......Page 98 iii. The Wasteful State of the Political Economists......Page 102 iv. The Victorian Fiscal Constitution......Page 106 v. The Persistence of Mercantilism......Page 109 vi. Conclusion......Page 114 Part Two The Rise, Triumph and Fall of Keynes......Page 116 i. The Trouble with Money......Page 120 ii. The Problem with Fiscal Policy......Page 127 iii. The Macmillan Committee......Page 135 iv. The General Theory of Employment, Interest, and Money......Page 138 v. Policy Implications......Page 145 vi. Conclusion......Page 150 Appendix 5.1: Contrast Between the Classical and Keynesian Models......Page 153 Appendix 5.2: The Fiscal Multiplier......Page 154 i. Keynesianism Ascendant......Page 158 ii. Full Employment Keynesianism: 1945–60......Page 162 iii. Growth Keynesianism: 1960–70......Page 169 iv. Reasons for the Strength of the Boom......Page 175 v. Stagflation Keynesianism: 1970–76......Page 183 vi. Great Britain: the End of the Keynesian Road......Page 188 7. The Theory and Practice of Monetarism......Page 192 i. Keynes and the Classics......Page 193 ii. The Neo-classical Synthesis......Page 194 iii. The Emergence of the Counter-orthodoxy......Page 195 iv. Monetarism......Page 197 v. The Monetarist Experiment: 1976–85......Page 205 vi. Monetarism’s Fiscal Legacy......Page 211 vii. From Friedman to the New Consensus: 1985–2008......Page 215 viii. Conclusion......Page 222 Appendix 7.1: IS/LM, the Keynesian Teaching Tool......Page 224 Appendix 7.2: The Modelling of Expectations......Page 226 Appendix 7.3: The Central Bank Reaction Function......Page 233 Part Three Macroeconomics in the Crash and After, 2007–......Page 236 i. The Fiscal Crisis of the State......Page 242 ii. The British Debate......Page 246 iii. Austerity: A Comparative Assessment......Page 262 iv. Conclusion......Page 265 Appendix 8.1: Monetary Financing of the Deficit......Page 267 9. The New Monetarism......Page 269 i. Pre-crash Monetary Orthodoxy......Page 270 ii. Why Quantitative Easing?......Page 274 iii. Quantitative Easing Programmes, 2008–16......Page 277 iv. How was QE Meant to Work?......Page 279 v. Assessment......Page 284 vi. Conclusion......Page 298 Appendix 9.1: A Note on Tim Congdon......Page 300 i. The Indifference of Mainstream Theory to Inequality......Page 309 ii. The Microeconomics of Distribution......Page 311 iii. Distribution and the Macroeconomy......Page 314 iv. The Modern Under-consumptionist Story......Page 319 v. Conclusion......Page 326 11. What Was Wrong with the Banks?......Page 328 i. Pre-crash Orthodoxy......Page 329 ii. Theory......Page 331 iii. Understanding Banking: Some Essential Terms......Page 337 iv. Loosening the Regulatory Noose......Page 339 v. Financial Innovation......Page 343 vi. Conclusion......Page 348 Appendix 11.1: Why Didn’t the Credit Ratings Agencies Do Their Job?......Page 350 i. Introduction......Page 352 ii. A Pre-crash Bird’s-eye View......Page 355 iii. Some Basic Theory......Page 356 iv. Current Account Imbalances as a Cause of Meltdown?......Page 357 v. Saving Glut versus Money Glut......Page 359 vi. Banking Imbalances......Page 363 vii. Conclusion......Page 364 Part Four A New Macroeconomics......Page 366 i. Introduction......Page 368 ii. What Should Governments Do and Why?......Page 370 iii. A New Macroeconomic Constitution......Page 372 iv. The Inflation Problem......Page 379 v. Making Banking Safe......Page 382 vi. Inequality......Page 389 vii. Hyper-globalization and its Discontents......Page 392 viii. Reforming Economics......Page 405 Notes......Page 412 Bibliography......Page 448 B......Page 482 C......Page 485 D......Page 488 E......Page 489 F......Page 491 G......Page 494 I......Page 496 K......Page 498 L......Page 500 M......Page 501 N......Page 504 P......Page 506 Q......Page 507 R......Page 508 S......Page 509 U......Page 511 Y......Page 513