Ralph Hawtrey

You may wonder why I chose to name my chair at Mercatus the “Ralph Hawtrey Chair of Monetary Policy.”  Here are a few reasons:

1.  He was an early supporter of NGDP targeting, or something relatively close.

2.  He was an outstanding monetary economist.

3.  He was a moderate with pragmatic views.

4.  He had a sticky wage/monetary shock view of the cycle, and his views on the Great Depression were very close to mine (gold hoarding and artificial attempts to raise wages.)

5.  He believed in monetary offset of fiscal stimulus.

6.  He is well liked by people who disagree with each other on other issues, including David Glasner and George Selgin.  David dedicated his blog to Hawtrey.

Over at Econlog I have a much longer post with some quotes to back up these claims.


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49 Responses to “Ralph Hawtrey”

  1. Gravatar of JoeMac JoeMac
    20. January 2015 at 10:35

    Scott, do you think you might one day provide us with a reading list or guide to Hawtrey’s works, so that the uninitiated may delve into his ideas. I don’t feel comfortable just picking up his books.

  2. Gravatar of Britonomist Britonomist
    20. January 2015 at 10:39

    British economists represent! :)

  3. Gravatar of James Oswald James Oswald
    20. January 2015 at 10:57

    I thought “that’s an incredible coincidence the chair is named after Hawtrey”.

  4. Gravatar of Scott Sumner Scott Sumner
    20. January 2015 at 11:50

    JoeMac, Let me check with David Glasner and get back to you.

  5. Gravatar of George Selgin George Selgin
    20. January 2015 at 14:17

    My favorite Hawtrey piece is “Money and Index Numbers” (1930), in which Hawtrey defends a productivity norm, while also claiming, in a passage that might have been written by Hayek (whose work may indeed have had some influence) monetary expansion aimed at preventing deflation at a time of improving productivity might lead to profit inflation and, hence, to an unsustainable boom.

  6. Gravatar of Ashton Ashton
    20. January 2015 at 15:09

    After arguing with some Austrians on Reddit, they keep arguing that shortfalls in AD (which NGDPLT would obviously avoid, by definition) and deflation are necessary to allow the economy to respond to extrinsic shocks, and that your policy would artificially inflate demand and encourage malinvestment and moral hazard.

    How do you respond to these arguments?

  7. Gravatar of Daniel Daniel
    20. January 2015 at 15:20

    shortfalls in AD […] and deflation are necessary to allow the economy to respond to extrinsic shocks

    https://en.wikipedia.org/wiki/Trial_by_ordeal

  8. Gravatar of JoeMac JoeMac
    20. January 2015 at 15:46

    While I’m ahead, let me throw in a request that the reading list includes pre-1936 macro-monetary economists like Cassell, Robertson, and Fisher, if possible.

    The problem I have with pre-1936 macro is that it doesn’t come in easily digestible textbox form.

  9. Gravatar of benjamin cole benjamin cole
    20. January 2015 at 16:21

    I was hoping the chair would be named after me. I may not take this sitting down.

  10. Gravatar of George Selgin George Selgin
    20. January 2015 at 17:32

    Ashton are the Austrians of whom you speak saying that AD should be allowed to respond or merely that P should? That P should fall in response to external productivity innovations is itself consistent with stable NGDP.

    It would clarify matters further to know what external shocks these Austrians are talking about.

  11. Gravatar of ssumner ssumner
    20. January 2015 at 17:37

    George, Thanks for that information.

    JoeMac, Those economists are well worth reading.

    Ben, Pun intended?

    Ashton, I don’t see how malinvestment or moral hazard would occur if AD grew at a slow but steady pace. I would add that Hayek favored NGDP targeting, and I seem to recall that he’s considered an Austrian economist.

  12. Gravatar of Philippe Philippe
    20. January 2015 at 17:53

    “That P should fall in response to external productivity innovations is itself consistent with stable NGDP”

    Scott, could you possibly explain why you don’t advocate a stable NGDP regime like George Selgin seems to? What is the main thing that separates you?

  13. Gravatar of Major.Freedom Major.Freedom
    20. January 2015 at 19:08

    “Ashton, I don’t see how malinvestment or moral hazard would occur if AD grew at a slow but steady pace.”

    Malinvestment and moral hazard are not more pronounced or less pronounced based on the extent of AD growth.

    The concept of malinvestment, in Austrian theory, is predicated on economic calculation, not quantifiable aggregated magnititudes.

    What happens is that when monetary variables including prevailing relative prices (not price levels), relative spending (not aggregate spending), and relative interest rates (not aggregate interest rate levels) diverge from what would otherwise be free market relative prices, spending and interest rates, investors in a division of labor are foisted into a world where the information available, and their individual pursuit of profit and avoidance of losses, make it impossible for them to coordinate their behavior given the absolute law of scarcity.

    Coordination does not require stable aggregate spending. Coordination requires free market information.

    With central banks targeting ANY variable to what will invariably be an arbitrary amount, it makes free market information an impossibility, and thus sustainable coordination an impossibility. Errors are built up over time, and they cannot go away with persistent central bank monetary variable targeting.

    It’s not that free market coordination occasionally requires falling NGDP. It’s that it occasionally requires a change in relative variables that only a market driven fall in NGDP will allow. This is because central banks persistently targeting NGDP invariably brings about undue relative changes. Investors cannot eventually overcome this problem with a sufficiently long run NGDP targeting. Investors will never have access to free market information as long as that occurs.

    A persistent targeting of prices causes a build up of errors, until scarcity is finally learned and accepted, but not necessarily consciously so, but by the effects scarcity has on consumer and saver behavior. Then we see “unexplained” widespread increases in cash preference, which is to say “unexplained” declines in aggregate spending as more sustainable relative prices, spending and interest rates appear from market forces manifesting in a different way that you call a recession.

    You interpret these events as central banks failing to maintain AD. Austrians interpret the same events as an outcome of past central bank inevitable failures of making it impossible for investors to not only know market information, but be bound by them, given their individual pursuit of profit and avoidance of losses, in the very currency the production and distribution of which is made coercively immune from market forces of profit and loss.

    Economic principles in Austrian theory are not divorced into two classes, one which is supposed to be centrally controlled while the other is individually controlled. Austrians hold that as untenable; as a product of a mistaken view of man derived from the same thread of Platonic thought that cleaved man into two: a physical being and a spiritual being. Earth below, dirty, messy, and irratic. Heaven above as a calling, clean, pure, and stable.

    This vision of man is then hastily transposed onto existing power relations that arose by brute force and conquest. Hence, states are viewed as the mechanism by which “macro” variables, the heavenly, pure, stable concepts, are to be controlled, while private institutions are viewed as the mechanism by which “micro” variables, the dirty, messy, irratic concepts, are to be controlled.

    Market monetarism is the outcome of the neo-Platonic tradition of “man as other than himself” thought which infiltrated economics under the cover of pragmatism.

    Humans are not a species that needs or requires or is benefitted by stable aggregates. A stable aggregate as an ideal is another iteration of God. Singular absolutes, NGDPLT included, are concepts that the impressionable, more passive mind easily fixates upon, and begins to regard as sacred. More and more problems of society are viewed as solvable by a social church devoted to essentially worshipping the concept. Instead of missionaries who are duty bound and called to spread obedience and respect under the absolute sacred concept of an all encompassing redeeming mechanism in the form of a historical human figure whose interpretation and control is to be monopolized by the church of the soul, there are missionaries who are duty bound and called to spread obedience and respect under the absolute sacred concept of an all encompassing redeeming mechanism in the form of stable quantifiable exchanges of a commodity whose interpretation and control is to be monopolized by the church of money.

    And you can bet your last dollar that there were impressionable, passive minded people who believed that advising the church of the soul was in everyone’s primary interest out of pragmatic reasons. The more independent, active minded people shaped the world, while the opportunistic pragmatists merely shifted around what was handed to them, and the worst is that the passive minded believed they had to emotionally and intellectually accept it, while pretending to play the role of world shaper by tinkering around with the left over bones and scraps hoping to find a magical pattern in how they are thrown at them.

  14. Gravatar of Major.Freedom Major.Freedom
    20. January 2015 at 19:29

    George Selgin:

    “That P should fall in response to external productivity innovations is itself consistent with stable NGDP.”

    While it is consistent with stable NGDP, it does not require or imply it. Many things are consistent with “P falling in response to productivity growth”, such as my very slight receding hairline.

    P falling in response to productivity growth is “consistent with” variable NGDP, as long as the change in NGDP is less than the change in productivity. E.g. If productivity rises 5%, then as long as NGDP does not rise by more than 5%, P will fall. By the same token, if productivity falls by 5%, then as long as NGDP falls more than 5%, P will fall.

    Those who say “Let prices fall if market forces deem them to fall by sufficient growths in productivity” are not necessarily advocating or relying upon stable NGDP. They could be an advocate of free market determined NGDP, whatever it may be.

  15. Gravatar of Ray Lopez Ray Lopez
    20. January 2015 at 20:05

    @MF – let’s not give up the chance to have a second best or very good solution, like Selgin advocates, in an attempt to get the best solution, as you may advocate, because we’ll end up with a worse solution, such as [redacted] advocates.

    I second Philippe’s request “Scott, could you possibly explain why you don’t advocate a stable NGDP regime like George Selgin seems to? What is the main thing that separates you?” I hope Sumner responds to Selgin. As for Ralph Hawtrey, another economist has his photo on his blog, forget the name now.

    I am reading Selgin’s book Less Than Zero and it’s great, seems like a ‘hard money’ framework to me. I enjoy Selgin’s style, written for a layperson with a good understanding of economics. No formal math to impress his peers, just good English (I don’t mind math, but often I find the equations are not explained well, unless you have training in logic notation, and these economists I suspect are using some PhD student from the university math department to proof their work, if not write it, which makes it useless to most of us that lack this background).

  16. Gravatar of Major.Freedom Major.Freedom
    20. January 2015 at 20:22

    Ray:

    Let’s not give up the chance to have the second best solution, in an attempt to get a 3rd best solution, as you may advocate, because we’ll end up with a worse solution, such as [redacted] advocates.

    See what I did there?

    It just isn’t believable to characterize one’s best solution as “second best” as if to make it more palatable or digestible. Anyone devoted to an idealistic cause, be it productivity norm, or NGDLT, can advertise their plan as a 2nd best solution.

    I can advocate for my ideal of free markets, by contrasting it with a perfect-benevolent-peace-enforcing-non-aggressive-entirely-voluntary-because-everyone-consents-to-it territorial monopoly of protection and security, and then calling my advocacy of free markets a 2nd best solution, and claiming it would prevent worse solutions from attempting to achieve a perfect 100% consensual monopoly.

    Am I really non-idealistic because I am not totally against fiscal policy in the form of payroll tax cuts? Ha!

  17. Gravatar of Philippe Philippe
    20. January 2015 at 20:42

    MF’s idea is that whatever happens in a weird imaginary neo-feudal world is necessarily good, because “homesteading”. Therefore ‘free markets’ rule, yeah!

    That is literally the intellectual extent of MF’s theories.

  18. Gravatar of Major.Freedom Major.Freedom
    20. January 2015 at 20:46

    Daniel:

    “shortfalls in AD […] and deflation are necessary to allow the economy to respond to extrinsic shocks

    https://en.wikipedia.org/wiki/Trial_by_ordeal

    Allowing coordination to occur based on individuals pursuing their own unique interests, constrained to the existence of all other individuals pursuing their unique interests, and allowing cooperation in the form of voluntary production and exchange of property as each individual sees fit, which may after a period of socialism result in adjustments and adaptations that are relatively painful, is the exact opposite of trial by ordeal.

    If one group of people through no real fault of their own find themselves in a world where making gains requires catering their intellectual investment and skills/experience acquisition towards projects that are nominally profitable in large part because of aggression that originates elsewhere in society (think of a bar or restaurant owner operating in or near the CIA headquarters), if said aggression and exploitation were reduced or eliminated, which then had the eventual effect of reducing the short term income of the bar or restaurant owner and the employees, it is not an honest characterization to view the losses the owner experienced as a “trial by ordeal.”

    It would be more accurate to think that trial by ordeal activity has been reduced, with the resulting individual preferences proving that the bar owner was making choices that are not most valued. Value was prevented from being manifested by the aggression.

    If you excuse me, if you’ll pardon me, but when a slave master experiences losses due to an ending of slavery, and when the restaurant owner who previously served slave masters finds that their revenues declined significantly to the point of bankruptcy, and laying off employees, then I am sure you will not characterize these losses as “trial by ordeal”. You won’t because you will do what I am doing now: putting justice above material gains.

    The difference is that you don’t agree that justice occasionally demands material losses. To you wealth seems to be the be all and end all of human life, no matter if there are victims in the process, because F them.

    With justice comes true prosperity. You lack a strong enough sense of justice.

  19. Gravatar of Major.Freedom Major.Freedom
    20. January 2015 at 20:48

    Philippe’s idea is that whatever happens in a weird imaginary neo-Philippe world is necessarily good, because “anti-homesteading”. Therefore ‘managed markets’ rule, yeah!

    That is literally the intellectual extent of Philippe’s theories.

  20. Gravatar of Philippe Philippe
    20. January 2015 at 20:53

    Oh, and because we don’t live in MF’s weird imaginary neo-feudal world, therefore bad stuff happens.

    The reason why bad stuff happens is because we don’t live in MF’s weird imaginary neo-feudal world.

    This can be explained by the fact that whatever happens in MF’s imaginary neo-feudal world is necessarily good by definition, and that any deviation from MF’s fantasies is necessarily bad by definition.

    Yes, Mf’s ideology is completely circular and nonsensical, but that doesn’t matter because its only real purpose is to make MF feel superior, so he can make his endless pompous silly rants.

    There really is no other point to MF’s ideological nonsense. It only serves as a sort of crutch for his strange psychological needs and problems. You should always see it as such, and feel sorry for him.

  21. Gravatar of Philippe Philippe
    20. January 2015 at 20:58

    btw MF you don’t support what anyone else would recognise as ‘free markets’. You advocate a weird neo-feudal ideology. You just use the rhetoric of free markets to support you bizarre ideology.

  22. Gravatar of Major.Freedom Major.Freedom
    20. January 2015 at 21:03

    Oh, and because we don’t live in Philippe’s weird imaginary neo-Philippe world, therefore bad stuff happens.

    The reason why bad stuff happens is because we don’t live in Philippe’s weird imaginary neo-Pbilippe world.

    This can be explained by the fact that whatever happens in Philippe’s imaginary neo-Philippe world is necessarily good by definition, and that any deviation from Philippe’s fantasies is necessarily bad by definition.

    Yes, Philippe’s ideology is completely circular and nonsensical, but that doesn’t matter because its only real purpose is to make Philippe feel superior, so he can make his endless pompous silly rants.

    There really is no other point to Philippe’s ideological nonsense. It only serves as a sort of crutch for his strange psychological needs and problems. You should always see it as such, and feel sorry for him.

  23. Gravatar of Major.Freedom Major.Freedom
    20. January 2015 at 21:04

    btw Philippe you don’t support what anyone else would recognise as ‘managed markets’. You advocate a weird neo-Philippe ideology. You just use the rhetoric of managed markets to support your bizarre ideology.

  24. Gravatar of Philippe Philippe
    20. January 2015 at 21:07

    That’s very funny, mf.

    Unfortunately for you, my arguments are not completely circular, whereas yours are, but you’re just too stupid to even understand it.

    In many ways it is actually quite extraordinary – that someone could be so dedicated to such a profoundly stupid belief system, as you are. You probably deserve some sort of prize.

  25. Gravatar of Philippe Philippe
    20. January 2015 at 21:08

    yeah but you don’t support free markets. At all. Fact.

  26. Gravatar of Major.Freedom Major.Freedom
    20. January 2015 at 21:15

    That’s very funny, Philippe.

    Unfortunately for you, my arguments are not completely circular, whereas yours are, but you’re just too stupid to even understand it.

    In many ways it is actually quite extraordinary – that someone could be so dedicated to such a profoundly stupid belief system, as you are. You probably deserve some sort of prize.

    yeah but you don’t support managed markets. At all. Fact.

  27. Gravatar of Philippe Philippe
    20. January 2015 at 21:40

    You’re clearly a very sick man.

    Here’s a simple question for you: do you think that whatever happens in your imaginary ‘ancapistan’ world is necessarily good, or could it possibly be very very bad?

  28. Gravatar of Major.Freedom Major.Freedom
    20. January 2015 at 21:54

    You’re clearly a very sick man.

    Here’s a simple question for you: do you think that whatever happens in your imaginary ‘Philippeistan’ world is necessarily good, or could it possibly be very very bad?

  29. Gravatar of Philippe Philippe
    20. January 2015 at 22:50

    if people were to adopt the ideas I think are reasonable, it is possible, hypothetically, that things could turn out very very bad. But in your case that is not possible because you define your ideas as being necessarily good, by definition.

  30. Gravatar of Major.Freedom Major.Freedom
    20. January 2015 at 23:19

    “If people were to adopt the ideas I think are reasonable, it is possible, hypothetically, that things could turn out very very bad.”

    You’re lying. What you are actually thinking is that if people were to adopt the ideas you think are reasonable, it is possible, hypothetically, that people might deviate from what you think is reasonable activity, and that deviation is what will result in things turning out very, very bad.

    You aren’t actually thinking that things could turn out very, very bad if people followed your ideas accurately.

    “But in your case that is not possible because you define your ideas as being necessarily good, by definition.”

    As do you, or else you would not even think your ideas are reasonable in the first place. You think what you do because you think they are “good”, however you define it in distinction with ideas you define as “bad”, for example how you define my ideas. In your view, my ideas are bad because you have defined them as bad, and because you have defined what you suspect will be the outcomes as bad. You define your ideas as good, and you define what you expect the outcomes to be as good.

    In any event, you do not care what is good for people other than yourself, as defined by them and not you. You expect me to adopt your definitions of good and bad. You expect me to define what I advocate as “possibly” bad. You want me to be skeptical of what I advocate, but you don’t want me to be skeptical of what you advocate. You say that your ideas might turn out very badly, but again, that is only to the extent people deviate from your ideas.

    If you seriously believe that there are parts of what you think is reasonable that may turn out very bad, but you do not explain in detail what exactly will be bad, why it will be bad, and why your ideas are responsible for why things are bad, then there is no reason for me to take your facade seriously. All you’re really doing is claiming your ideas might turn out bad in order to make me and others believe under false pretenses that you’re open minded and are willing to accept the possibility that my ideas are more reasonable than yours, more logical than yours, and will have better outcomes than yours. Given what you have written about my politics, you’re as closed minded as you accuse me of being.

    I will not deviate from my ideas to be closer to your ideas the way you want. I absolutely reject aggression against person and property. I am not claiming that a perfect nonaggression world will occur, if ever. I don’t have to accept what anyone does at face value simply because they did what they did.

    If my ideas are widely learned and accepted, and put into practice, I am not claiming to predict anything of what that world would look like. I do not define the outcomes in such a world as good or bad. I do not define good and bad in terms of outcomes. If a free people use their bodies and property to shoot heroin all day, or become fortune 500 company leaders or philanthropists who finance cures for diseases, or cheaper energy, neither outcome I define as good and bad.

    With absolute property rights protections, each individual is free to act on their own definitions of good for themselves. It is not up to me to define it for them.

    You keep claiming that I believe the outcomes in a free society are necessarily good. No, I believe that there will be 7 billion different definitions of good, all as equally valid as every other, to the extent that such definitions allow for other people to define good for themselves.

    You have not even defined what is good and what is bad, so how do you expect me to take what you say and know what you are talking about?

  31. Gravatar of Ashton Ashton
    21. January 2015 at 00:09

    George,

    No, the Austrian in question is claiming that dropping AD is necessary for creative destruction, and a restructuring of the economy.

    Scott,

    Apparently keeping nominal income on trend props up ‘vampiric institutions’ and artificially inflates demand.

    I mean, I *know* he’s wrong, but I figured you might have a more effective grasp on why.

  32. Gravatar of Daniel Daniel
    21. January 2015 at 01:58

    Ashton,

    People are not perfectly rational. If they were, there would be no “stickiness “.

    But since humans are the way they are (basically, stone age hunter-gatherers), they are very averse to NOMINAL losses, even if they gain in REAL terms.

    Therefore, society experiences A LOT of disruption when AD drops.

    It’s that simple, really :-)

    As for the Austrians – the fact that their theory requires humans to act in a way no sane individual ever has renders it useless in practice.

    As for the loons who continue to peddle that toxic sludge … well, just read Major_Moron’s walls of drivel and judge for yourself.

  33. Gravatar of George Selgin George Selgin
    21. January 2015 at 04:37

    Ashton, thanks for the clarification. Those are the sort of “Austrians” who incline me to call myself a monetarist!

    MF et al: I don’t claim that stable NGDP implies that P must fall, only that the two aren’t inconsistent. The difference between me and Scott in this regard is only a matter of trends and percentage points. In fact, a big enough positive productivity innovation would result in deflation even under Scott’s preferred regime. (Smaller ones, in contrast, would merely reduce the inflation rate.)

  34. Gravatar of TravisV TravisV
    21. January 2015 at 06:57

    Eurozone: Open-ended QE???

    http://www.wsj.com/articles/ecb-executive-boards-qe-proposal-calls-for-roughly-50-billion-in-bond-buys-per-month-1421851130

  35. Gravatar of David Glasner David Glasner
    21. January 2015 at 08:56

    Scott, Congratulations on your appointment. You could not have made a better choice for the name of your new position. In addition to the virtues of Hawtrey that you list, which I fully agree, I would list two others. First, Hawtrey diagnosed the Great Depression 10 years before it started, and his monetary account of the Great Depression contained in works like The Gold Standard, The Art of Central Banking and Trade Depression: The Way Out, written over 30 years before Friedman and Schwartz published the Monetary History of the US, is in almost every respect superior to the account of the Monetary History. Second, Hawtrey anticipated the central propositions of the monetary approach to the balance of payments by several decades.

    Here are six books by Hawtrey that I think contain most of his important ideas. Good and Bad Trade (1913) his first book setting out his cycle theory, Currency and Credit (1919 and many subsequent editions) a more complete theory of money plus a lot of historical, institutional, philosophical and policy discussion, The Gold Standard (1927 and many later editions), Trade Depression and the Way Out (1933 2nd edition) title speaks for itself, The Art of Central Banking (1932, a long title essay, plus several important previously published papers), A Century of Bank Rate (1938, a comprehensive historical account of how the Bank of England conducted monetary policy from 1844 to 1938. He wrote at least another 15 books or so, plus at least a hundred articles and many book reviews, so there is a lot more material to go through.

  36. Gravatar of Ray Lopez Ray Lopez
    21. January 2015 at 09:33

    Hard questions for monetarists. Money supply as in M1, or arguably any money supply change, does not equate to GDP or NGDP, see below. Hence, how do monetarists explain the first paragraph, on the Chinese breakdown of M1 and GDP? Is it similar to the well-known US breakdown, since the mid 1970s, which some say is due to the US dollar held outside the USA (66% of it resides outside the USA)? Or perhaps by reference to the second paragraph in Wikipedia? And what to make of M1/MB being < 1 today? Either way, it does not bode well for monetarism. Perhaps Krugman has it right: to make monetarism 'work', it has to go hand-in-hand with fiscal policy, which means getting government to spend the money (sad but true)? But often there's no real 'greater than one multiplier' for fiscal policy either, so arguably nothing works in a recession / depression? – RL

    On China and the breakdown of M1 and GDP growth: "M1 is money being held ready for use in anticipated transactions. It should correlate very well with GDP, which is a sum of transaction values. But while M1 flies around over time, GDP growth barely budges in comparison" – See more at: http://marginalrevolution.com/#sthash.LhHOQCjB.dpuf

    Wikipedia on M1: "In addition, those economists seeing the central bank's control over the money supply as feeble say that there are two weak links between the growth of the money supply and the inflation rate. First, in the aftermath of a recession, when many resources are underutilized, an increase in the money supply can cause a sustained increase in real production instead of inflation. Second, if the velocity of money, i.e., the ratio between nominal GDP and money supply changes, an increase in the money supply could have either no effect, an exaggerated effect, or an unpredictable effect on the growth of nominal GDP." and "Some heterodox economists argue that the money supply is endogenous (determined by the workings of the economy, not by the central bank) …" http://en.wikipedia.org/wiki/Money_supply

    Money Multiplier: M1 / MB. Currently as of June 14, 2012 it is .85[citation needed]. While a multiplier under one is historically an oddity, this is a reflection of the popularity of M2 over M1 and the massive amount of MB the government has created since 2008.

    Background: (Milt Friedman wrong about M1, Alan Greenspan): http://www.philipji.com/item/2011-04-11/milton-friedman-on-alan-greenspan

    http://www.federalreserve.gov/newsevents/speech/bernanke20061110a.htm (Speech by Bernanke on "the case of the Missing Money")

  37. Gravatar of Charlie Jamieson Charlie Jamieson
    21. January 2015 at 10:22

    I’ll take a shot at those questions, for the sake of discussion … not a monetarist that I know, just a layperson.
    — ‘Money’ consists of deposits, T-bonds and cash. All liquid, stores of value, spendable (or in the case of T-bonds, easily converted to deposits.
    — Money is mostly created in the private sector by bank lending. Some money is created by deficit spending, which creates a T-bond which unlike a private bond, is most likely not going to be paid back in the traditional sense, and as we’ve seen, the central bank will also step in to support the government bond.
    — The central bank has some ability to slow the creation of money in a booming economy by tightening rates, but less ability to boost the creation of money in a stagnating economy. Private actors will take loans when their expected income is rising.
    — One of our problems is that most lending now creates money in the financial markets and not the Main Street economy. If a plumber borrows to expand his business or buy a car, that creates economic activity. If a bank borrows from another bank to buy an asset, that money isn’t really spent, but drives up the value of the financial asset.
    — Another problem: A lot of economic activity centers on rising asset prices, which benefits a few people. Asset prices rise and the wealthy see a rise in their financial wealth. Trouble is, this rising asset price creates a problem when too many assets go on the market, as asset prices are growing faster than the deposits to buy them. In the financial crisis, the price of MBS garbage tumbled because there were no buyers.
    — The Fed intervened in 2008-2009 to support MBS and other asset garbage. The Fed works for the financial markets. Had the Fed ‘bought’ credit card debt or student loan debt or done something like that, it would have gotten far more bang for its buck.
    — Our economics problems are partly demographic and mostly because the financial elite have figured out how to create money and keep it in their circles. The Fed supports this. What we need is the 21st Century equivalent of trust busting.
    — Something dramatic will happen in the next 20 years. People will realize that the wealth of Warren Buffett, for example, is a claim on their future production, and will rebel against working for the shareholders.
    — We have a great system; but it has become corrupted. If the system is not reformed, the public will claim ownership of the money supply. We will see government/public seizure of financial assets and/or pure money printing.

  38. Gravatar of Ray Lopez Ray Lopez
    21. January 2015 at 11:16

    Everybody: I found the Sumner post that summarizes Targeting NGDP vs Productivity Norm targeting. It reads like there’s little difference between Sumner’s and Selgin’s proposals, but I think it’s a subterfuge (thought I can’t prove it, however, I do believe Sumner is an Keynesian inflation wolf in conservative sheep’s clothing). Here is the link, thanks to Andrew_FL: http://www.themoneyillusion.com/?p=3059 (from Dec 2009)

  39. Gravatar of Nick Nick
    21. January 2015 at 13:16

    Ray,
    Did you read the comments on that post? Really good stuff there if you actually care. A back and forth with Selgin! I think the master subterfuge would likely have been uncovered back then if there were one. Read deep … It’s probably there somewhere…
    Also, where ARE all the Keynesian Inflation Wolves? I remember learning about them in school but I almost never see any.

  40. Gravatar of ssumner ssumner
    21. January 2015 at 14:12

    Ashton, I’ve said about all I have to say on the more extreme version of internet Austrianism. If they have a specific argument that doesn’t involve vampires I’d be glad to look at it. But I’d also want to know what is the proposed medium of account in their scheme.

    Ray, If there are any monetarists here they can answer your question. I pay no attention to M1.

    And yes, going to the University of Chicago from 1977 to 1980 really made me love inflation. I just can’t get enough of it.

  41. Gravatar of ssumner ssumner
    21. January 2015 at 18:47

    JoeMac, David Glasner tried to leave a comment, but it didn’t go through. He emailed me the following:

    “There are six books of Hawtrey’s that I’m familiar with (actually I also read his last book, but I wouldn’t recommend it to a beginner though there is some interesting stuff in it relevant to money income targeting — it wasn’t up to his highest standard). Good and Bad Trade (1913) his first book setting out his cycle theory, Currency and Credit (1919 and many subsequent editions) a more complete theory of money plus a lot of historical, institutional, philosophical and policy discussion, The Gold Standard (1927 and many later editions), Trade Depression and the Way Out (1933 2nd edition) title speaks for itself, The Art of Central Banking (1932, a long title essay, plus several important previously published papers), A Century of Bank Rate (1938, a comprehensive historical account of how the Bank of England conducted monetary policy from 1844 to 1938. He wrote another 15 books or so, plus at least a hundred articles and many book reviews, so there is a lot more material to go through.”

  42. Gravatar of Ray Lopez Ray Lopez
    21. January 2015 at 22:14

    @Nick – I read the comments from the 2009 link, and I am unclear about how Selgin’s framework operates. Does Selgin require the central bank to print money until such time certain NGDP targets are hit? (I think so, see the below). If so, this is as potentially inflationary as Sumner’s approach, as it will result in ‘overshoot’ as the Fed pushes on a string and nothing happens, when the economy is in a funk (and/or liquidity trap, though that’s a loaded phrase), which eventually could explode into Zimbabwe-style hyperinflation. – RL

    George Selgin December 2009 at 07:46 Two more very minor notes, Scott-but worth mentioning as they go to showing that our views [SELGIN’S AND SUMNER’S] are really closer than might otherwise appear to be the case. First, concerning the likely average deflation rate under a total factor productivity norm, I’d estimate it at no more than 1% rather than 1.5%, as most estimates place the long-run trend growth rate of capital input at somewhat over 1 percent; that is to say, that of the 3 percent average growth of real GDP, about one third belongs to each of the three factors of labor input, capital deepening, and TFP growth. That the first two factors are far easier to project than the last strengthens the case for a TFP norm (and indeed for other types of nominal income targets) as opposed to stable P norms, as the former don’t call for the monetary authorities to accommodate (and therefore to have to try and anticipate) output growth due to productivity improvements. Oh dear-I hit “Submit” before getting to my second point, which is that I quite agree that the present intermediate interest-rate target regime is the wrong one for implementing a productivity norm-or for maintaining a sound monetary policy of any sort in an environment of low interest rates. Like you I favor McCallum’s intermediate base targeting approach-that is, a money base growth rule with feedback from NGDP growth-for implementing a productivity norm under the present fiat CB regime; and I believe that such an approach, combined with the very low trend deflation we are talking about, would together suffice to avoid any risk of the policy leading us into a liquidity trap.

  43. Gravatar of Ray Lopez Ray Lopez
    21. January 2015 at 22:19

    OT – Wise words, akin to what I said about setting Fed policy based on unstable speculator ‘expectations’ in an illiquid or otherwise NGDP futures market… from Dec 2009 – http://www.themoneyillusion.com/?p=3059 “I’d like to criticize Sumner’s position that we should favor looking at expectations over looking at interest rates and the base. To me, this is skipping one step, because it is not obvious what the relationship between expectations and policy is. Instead, targeting something and discovering the relationship what you do (and credibly commit to do) and the market’s expectations are two different things.”

  44. Gravatar of Ralph Musgrave Ralph Musgrave
    21. January 2015 at 23:23

    I’m puzzled as to how Hawtrey can have believed in monetary offset. Reason is that monetary offset (statement of the obvious this) assumes that the central bank has the freedom to offset fiscal stimulus. In Hawtrey’s day, the Bank of England had much less independence from the political powers (aka fiscal powers) than nowadays, thus could the BoE have “offset” even if it had wanted to?

  45. Gravatar of Nick Nick
    22. January 2015 at 04:03

    Ray,
    I can’t speak for anyone else’s work, but in that thread prof Selgin does make it clear that ‘holding down inflation’ at ALL costs is a bad idea. If you want to call him a ‘pro inflation keynesian’ too I guess that’s your right … It doesn’t make much sense to me.
    Also you run from the term ‘liquidity trap’, which I believe is an actual tenet of New Keynesianism, but you really need it to make your argument. A ‘slowdown’ won’t cause the productivity norm to spiral into hyperinflation. It will cause a slightly elevated level of inflation for as long as the productivity slowdown continues. You need a weird discontinuity somewhere.

  46. Gravatar of ssumner ssumner
    22. January 2015 at 06:13

    Ralph, That’s unclear. There was certainly some offset, but it’s not clear it would be 100%. But at least he understood the idea.

  47. Gravatar of Major.Freedom Major.Freedom
    22. January 2015 at 20:57

    George Selgin:

    “MF et al: I don’t claim that stable NGDP implies that P must fall, only that the two aren’t inconsistent.”

    For sure, you were definitely clear. I just don’t see the significance of the fact that stable NGDP is consistent with a productivity induced fall in P, that is, what is intended to be said by using it.

    Speaking for just me, I’m not saying I demand prices to fall based on productivity. Just that if that is what happens in free enterprise, then let it happen. It is no good to reassure me that I’ll get to see falling prices with a “stable NGDP regime” and a high enough productivity.

    I notice that what people are heard as desiring, is interpreted so often as something to be artificially manufactured for them. The people want falling prices? OK, government should stabilize NGDP, and government should do what maximizes productivity. Then I’m supposed to feel satisfaction.

    “The difference between me and Scott in this regard is only a matter of trends and percentage points. In fact, a big enough positive productivity innovation would result in deflation even under Scott’s preferred regime. (Smaller ones, in contrast, would merely reduce the inflation rate.)”

    Yep, productivity would have to be higher than the rate of increase in NGDP.

    I still find it odd how you and Sumner and so many others, millions of you, can politely talk about what you and him “prefer”…for me, since what you prefer is imposed on me. Nobody even asked. It’s like my choice is treated as non-existent, and me bringing that up is often met with ridicule and abuse. I’m supposed to think more highly of your plan for me, than my plan for me.

    I think you ought to prefer whatever you want to prefer, as long as it does not infringe on what I prefer for my body and property.

    Your preference for money requires guns to be pointed at me if I would rather use my body and property in a different way for myself.

    My preference for money does not require guns to be pointed at you if you would have a different preference for yourself than I do for myself.

    Everyone gets this when the topic is food, or clothing, or housing. But money? It’s like up becomes down simply because we were born into a world with plank 5 of the Communist Manifesto being practised.

  48. Gravatar of Major.Freedom Major.Freedom
    22. January 2015 at 21:10

    Daniel:

    “People are not perfectly rational. If they were, there would be no “stickiness “.”

    Rationality does not require or presuppose “non-stickiness.” A world where prices change exactly in accordance with demand would be a world of such chaotic price fluctuations that economic planning would be an impossibility.

    The crude and primitive ideology you’re peddling is just another derivative, hostile attack on reason, by implicitly asserting an impossible standard for it.

    “But since humans are the way they are (basically, stone age hunter-gatherers), they are very averse to NOMINAL losses, even if they gain in REAL terms.”

    You are absolutely oblivious to how your stance against reason undercuts the validity of your very argument, since you are human and you are appealing to people’s reason in order to prove your claim. No wonder you make so many logical and semantic errors.

    “Therefore, society experiences A LOT of disruption when AD drops.”

    No, the drop in AD is itself a consequence of disruptions. AD is an outcome. If AD changes, it because of prior reasons. If AD dropping is an issue, then what caused it is the issue.

    “It’s that simple, really :-)”

    Simplistic, more like it.

    “As for the Austrians – the fact that their theory requires humans to act in a way no sane individual ever has renders it useless in practice.”

    Liar. The only thing that Austrian theory requires is for humans to act, period. Austrianism is not prescriptive, for the millionth time. There are no “oughts” in Austrian theory proper. Austrian theory is the theory of action AS SUCH. It includes ALL actions whatever, even the garbage you’re spewing on this blog for all to see.

    You don’t even understand what you’re criticizing.

    As for the loons who continue to peddle that toxic sludge … well, just read Major_Moron’s walls of drivel and judge for yourself.

  49. Gravatar of Some "Serious" Theoretical Writings that Favor NGDP Targeting – Alt-M Some "Serious" Theoretical Writings that Favor NGDP Targeting - Alt-M
    19. June 2018 at 06:01

    […] essay were all Hawtrey ever wrote on monetary theory, Scott Sumner might still have had reason for wanting his chair at Mercatus to be called "The Ralph  G. Hawtrey Chair of Monetary Policy." For no-one has ever made the case for preferring a stable level of nominal income (or what Hawtrey […]

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