James Tobin â Nobel Laureat (Karl-Heinz Ketterer)
"Fallacies of Monetarism"
A Critical Analysis of Monetarist-Rational Expectation-Supply-Side (Incentive) economics Approach to Accumulation During A Period of Inflationary Expectations
Price Change and Output Change: A Short-Run Three-Equation Analysis
Coats, Warren L., Jr.
Recent Monetary Policy Strategies in the United States
Recent Developments in U. S. Monetary Policy
Brissimis, Sophocles N and Leventakis, John A.
Inflationary Expectations and the Demand for Money: The Greek Experience
Von Rosen, RÃ¼diger
IWF weiterhin auf StabilitÃ¤tskurs
Bank- und BÃ¶rsenwesen. Ein Handbuch
A Study in the Theory of Inflation and Unemployment
Frowen, Stephen F. (Hrsg.)
A Framework of International Banking
Zur Theorie der importierten Inflation bei flexiblen Wechselkursen, Untersuchungen im Rahmen des monetÃ¤ren Ansatzes der Zahlungsbilanztheorie
Phelps, Edmund S.
Studies in Macroeconomic Theory
Hunt, E. K. and Sherman, J.
An Introduction to Traditional and Radicals Views
âFallacies of Monetarismâ
Modem monetarism is built on threnn fallacious assumptions. The first is that in a capitalist economy, markets operate in a perfect Walrasian manner, with prices being completely flexible and changing immediately in response to any change in the relation of supply and demand. The second is that a credit-money economy (where money consists of certificates of debt, and comes into existence as a result of bank directing)is the same as that of a commodity money economy, where the total amount of gold, silver or oxen outstanding at any one time is exogeneously given. The third assumption is that a change in the "money supply" has a direct influence in the demand for commodities and that the "money supply" is under the control of the Government. The first assumption leads to a denial of the possibility of an inflation occurring as a result of a rise in costs, even in times of deficient demand. It decrees that market responses to changes in the supply/demand relation can take the form of quantity responses and not price responses. The second assumption allows the monetarists to treat the quantity of paper money (however defined) as exogeneously determined. Once it is recognised that the amount of money in circulation is determined by, and changes with, changes in the public's demand for money, the empirical proofs produced in support of the quantity theory of money lose their validity. The rise in the money supply is always a consequence of, not a cause of, a rise in incomes and prices. Given a modern banking system with fractional reserve requirements, it could not be otherwise. The failure of 'monetarist' Governments (such as those of Mrs. Thatcher and President Reagan) to attain their stated objectives is easily explained once the basic fallacies in their reasoning are understood. In particular, the Thatcher Government has demonstrated (and the chief monetarist, Mitton Friedman, admitted) that with the type of monetary and banking institutions that exist, e.g., in England, the Government cannot control the "money supply".
This paper treats the theory of monetarism in both its theoretical and applied aspects, including its nebulous concept of the money stock, its uncorroborated assumptions of money velocity, its erroneous causal train of money and the price level, its neglect of the tic between pay hikes and the price march, and its follies in advocating rigid money supply policies, and denying the need for central bank monetary discretion, in an interdependent world economy where adventitious money and interest rate policies in one big country, such as the United States, are rather instantly transmitted to affect other economies, such as Germany. Western economies have been reeling under the triple disaster of zoomig prices, excessive unemployment, and extravagant interest rates by virtue of the monetarist policies of our times. Stagflation and slumpflation are literally new and strange experiences engendered by doctrinaire monetarism which has been impervious to the implications of the persistent pay escalation, managed a bit better in Germany than elsewhere because of the presence of "Gastarbeiters" and a more cooperative attitude of trade unions. But the relations will have to be formalized through Incomes Policies so that central banks can devote their full energies and formidable monetary instruments to cope with output levels, interest rates, and foreign exchange rates, without fear and trepidation of inflationary impulses.
âA Critical Analysis of Monetarist-Rational-Expectations-Supply-Side (Incentive) Economies Approach to Accumulation during a Period of Inflationary Expectationsâ
This article demonstrates that the Monetarist-rational-expectations view that a sudden widespread increase in inflationary expectations leads to, ceteris paribus, a proportional increase in the nominal rate of interest, so that the real rate of interest is unaltered (compared to a state of zero inflationary expectations) is logically false. Moreover, it is shown that if there is a sudden widespread increase in inflationary expectations, ceteris paribus, the marginal efficiency of capital is raised. Thus supply-side and Monetarist economists who are searching for logical policies to stimulate investment and savings should be encouraging expectations of even greater rates of inflation and simultaneously urging Central Banks to lower bond prices(nominal interest rates) via open market operations.
âPrice Change and Output Change: A Short-Run Three-Equation Analysisâ
This empirical study sets out to analyse the relative magnitudes of price and quantity reactions in terms of time and intensity to monetary and real change impulses. Reference is made to the pertinent results obtained by Milton Friedman, which show that the initial impact of change-inducing impulses primarily affects output, while price change follow later as a rule. The empirical study covers the USA in the period from 1952 to 1976 and uses quarterly values; this period is broken down into two subperiods. The differential effects in question are determined with the aid of a so-called g variable, the logarithmic difference between the growth rates of the price level and the real change in the GNP. In addition to various money-supply magnitudes, non-monetary variable for the fiscal impulse, underemployment, labour productivity, etc. are introduced as change-inducing impulses. For the estimates, the Almon method is used to determine the lags, which embrace seven quarters distributed in accordance with a second-degree polynomial. Among the conclusions, one deserving special mention is that the effects of the fiscal Impulse on real output are hardly more significant than those on the price level, while the impact of money supply variations is more likely to affect real output than the price level. Furthermore, it proves that - in contrast to earlier periods - in the recent past import prices have excerted a substantial pressure on the inflation rate in the USA.
Coats, Warren L., Jr.
âRecent Monetary policy Strategies in the United Statesâ
During the 1970s the U.S. Federal Reserve quantified its monetary policy increasingly in terms of desired growth rates of monetary Aggregates. This process was enhanced by the intellectual ascendancy of monetarism and given legal status by the Congressional adoption of the Federal Reserve Reform Act of 1977 (which made law of House Concurrent Resolution 133, first passed in 1975) and the Full-Employment and Balanced Growth Act of 1978 (Humphrey-Hawkins Act). As a result of these laws the Federal Reserve now sets and publicly discloses money growth rate targets for the upcoming year. This paper briefly reviews the procedures for formulating monetary policy in the United States in recent years, starting when policy was expressed as monetary targets, and describes and analyzes the Federal Reserve's strategies for achieving these targets. The Federal funds rate operating strategy of the 1970s is discussed as background for a description and analysis of the new, post-October 6, 1979 reserve strategy. The paper then considers the difficulties for a reserve strategy posed by lagged reserve accounting, and the new and enhanced role of the discount window.
âRecent Developments in U.S. Monetary Policyâ
For years, the Federal Reserve Board tried to achieve its money supply objectives by controlling the interest rate for Federal Funds. This conception was officially given up, however, when the growth rate of the various money supply components exceeded the desired target values to an ever greater extent. Since the decision of the Federal Open Market Committee of October 6, 1979, bank reserves have taken the place of the Federal funds rate, i.e., monetary policy is attempting to reach its money supply goals by controlling bank reserves. A little later, in February 1980, the Aggregates of the quantity of money redefined. This step had become ungently necessary because an number of innovations had made various types of deposit available for payments purposes and in effect as liquid as cheque account deposits. The new Aggregate M-1B takes account of this change and comprises, in addition to the former supply of legal tender (M-1, now M-1A), also all other credit balances available by drawing cheques on them. The "new monetary policy" was sharply criticized fairly unanimously by both monetarists and Keynesians. The reason for the criticism is above all the extreme fluctuations of the interest rates and the growth rates of the various money supply Aggregates which have since occurred.
Brissimis, Sophocles N and Leventakis, John A.
âlnflationary Expectations and the Demand for Money: The Greek Experienceâ
Inflationary expectations are used in the demand for money function for Greece as an alternative to the interest rate opportunity cost variable. Two hypotheses as to the formation of expectations are employed and money is defined both in the narrow and broad sense. The empirical results reveal that the demand function shifted in 1964 but remained stable during the period 1973 - 78 of high inflation. The demand for M1 was found to be homogeneous in prices and real income, and independent of the demand for financial or real assets. Substitution was evidenced between M2 and time deposits and M2 and real assets. Finally it was found that individuals form their expectations in accordance with the most recent developments in the rate of inflation i.e. their expectations correspond closely to perfect foresight.
Von Rosen, RÃ¼diger
âIMF still on a Stability Pathâ
This year's Annual Meeting of the IMF and the World Bank has resulted in a clear re-endorsement of the original aims of both institutions. For the IMF this means that it will continue to function as an institution providing help to countries in balance of payments difficulties, particularly by means of short-term loans, thereby curbing its tendency towards becoming a development bank. Further extension of its scope to grant credit outside the quotas was not envisaged for the time being, and in particular the calls for additional SDR allocations were not complied with. Representatives of the 143 Member Countries were agreed on the priority of the fight against inflation and the need for conditional IMF loans designed to bring about better balance of payments adjustment. The ordinary member quotas will, in the future, continue to be the most important sources of IMF financing. The talks and discussions before and during the Annual Meeting, despite some differences of opinion, reflected a practical, understanding approach and a desire to achieve acceptable solutions for industrialised and developing countries.