Meltzer, Allan H.
Monetarist, Keynesian and Quantity Theories
Kurzfristige Kapitalbewegungen, Geldmarktgleichgewicht und die EffektivitÃ¤t der Geldpolitik
LiquiditÃ¤tstheorie des Geldes als Gegenkonzept zum Monetarismus
Der Durchgriffswert von Beteiligungen
Marx on Money
MÃ¶sch, Irene und Simmert, Diethard B.
Banken-Strukturen, Macht, Reformen
Meltzer, Allan H.
âMonetarist, Keynesian and Quantity Theoriesâ
Monetarism is neither the quantity theory rediscovered nor Keynesian theory rewritten. Thomas Mayer's summary of monetarist propositions captures much of the spirit as well as the substance of monetarist proposition about Aggregate policy in a closed economy and brings out similarities and differences between monetarist and Keynesian theories. The formal similarity between monetarist and modern Keynesian theory is the result of development of both theories to a point at which the remaining differences are empirical. This is the position taken, in one way or another, by Thomas Mayer and most of the commentators on his paper. The paper traces many of the principal differences between monetarist, Keynesian and quantity theories to three related sources. One is the role of relative and absolute prices in the process of adjusting from one equilibrium position to the next. A second is the effect of fluctuations in real income, changes in risk and anticipations on relative prices including the prices of real and nominal assets. A third is the meaning and interpretation of fluctuations in output and employment. The last is a principal difference leading to differences in the policy recommendations by economists identified as Keynesian and monetarists. Monetarist interpretations of fluctuations in employment and output start from the model of time preference that underlies much of economic theory. The model distinguishes between anticipated income and current receipts or, in Friedman's version between permanent and transitory income. This model suggests a very different interpretation of unemployment than the Keynesian theory, in old or new forms, where all cyclical unemployment is regarded as "involuntary". Some implications of the "permanent income theory" are drawn, and there is discussion of evidence that could discriminate between alternative theories of unemployment.
âShort-term Capital Movements, Money Market Equilibrium and the Effectiveness of Monetary Policyâ
One of the most important conclusions of the monetary theory of the balance of payments is that in a system of fixed exchange rates the attempt of a country to pursue a monetary policy independently of the rest of the world must be abortive. Attempts at empirical verification of this conclusion also for the short run have brought contradictory results to some extent. However, the estimators used were often not substantiated theoretically. On the other hand, where the econometric study was based on a theoretical model the results were misleading in many instances on account of choosing an unsuitable estimation period and/or budget restriction, because the causal relationship among variables was not susceptible of unequivocal clarification. The present study attempts to avoid these defects. First, a theoretical model is evolved, which concentrates on equilibrium in the money market. Then, various deliberations are undertaken with regard to the nature and responsiveness of the central bank's monetary policy actions, and their relevance to theoretical and empirical investigation of short-term capital movements are examined. Lastly, the model is subjected to empirical testing. It proves that the central bank of an open economy has a better chance of pursuing an effective short-term monetary policy with quantitative measures than with qualitative measures.
âThe Liquidity Theory of Money as an Alternative to Monetarismâ
The liquidity theory of money sets out, on the basis of empirical observations, to make allowances for the great importance of secondary liquidity in monetary theory and to derive conclusions for monetary policy. The following aspects appear to be particularly significant: It is shown to be necessary to draw a sharp distinction between money as defined by M1 and secondary liquidity, where secondary liquidity embraces assets and borrowing Potential capable of leading to availability of money at short notice and without significant costs (losses). The quantity of money is determined - at least with institutional arrangements such as those prevailing in the Federal Republic of Germany and other European countries - as a rule, not by the supply of money, but by the demand for money. From this follows that, contrary to the assertions of the monetarists, the quantity of money is not the determining factor for the price level and demand. This does not preclude the possibility that by limiting the supply of money the rise in demand can likewise be limited via far-reaching elimination of secondary liquidity. The money supply theory must be developed into a liquidity theory in the sense that, in addition to money, secondary liquidity must be taken into account as a central determinant. The secondary liquidity rates constitute the lower interest rate limit. The availability of secondary liquidity, however, enables the banks to adjust flexibly to demand for money to the extent that those demanding money are willing to pay the appropriate interest rates. The demand for money cannot be adequately explained by the traditional Keynesian motives. Since in a modern economy there is a broad range of short-term, interest-bearing forms of investing money which involve no price risk and can be adjusted flexibly to individual money needs, the speculative motive is, in fact, of no significance for the demand for money. It seems advisable to take into account, in addition to the transaction motive, a further motive which derives the growth of money demand from the intended increase in demand on the goods and factor markets, which is mostly oriented to real assets. It is designated the financing motive. A new type of liquidity trap replaces the Keynesian one. Towards the lower end of the scale, the quantity of money adjusts itself to the demand for money via recourse by the banks to secondary liquidity and repayment of credits by non-bankers. With regard to monetary policy it proves that over and above money quantity policy there must be liquidity policy.
âThe Penetration Coefficient of Participationsâ
A model of a calculus of interlocking capital is developed and discussed on the basis of several simple examples of interlocking capital, and then applied to the investigation of participation relationship in the case of domestic public companies. The basic idea of the calculus of interlocking capital consists in imputing the characteristic value of a public limited company, or a group of such companies, for instance their share capital or sales figures, to the share-holders in proposition to their participations. Since the shareholders themselves may, in their turn, be dependent economic units (public companies) whose capital is held by third parties, in a highly interlocked economy calculation of the participation ratios must take account of numerous participation levels and possible reverse interlocking. The calculated share of an autonomous economic unit in a public company is the penetration coefficient of the participation of the autonomous economic unit in a given dependent economic unit with regard to the influence of such participation on the dependent public company. In the empirical study, public authorities, foreign countries, banks and private persons are treated as autonomous economic units. The domestic public companies (non-banks) are the dependent economic units. The penetration coefficients of the participations of autonomous economic units with respect to the influence of the participations on domestic public companies are calculated separately for the public companies of 16 sectors. Addition of the solutions gives the influence of articipations of autonomous economic units on all domestic public companies.
âMarx on Moneyâ
Marx's contributions to monetary theory have generally been some what neglected and, if they were paid any attention at all, they have been rather severely criticized, even by Marxist economists. It should be emphasized, however, that they are central to Marx's view of the functioning of commodity producing (i. e., market) economies and are inextricably bound up with his theory of value. From Marx's analysis of the functions of money and credit and his reflections on the rate of interest it is concluded that his adherence to the labour theory of value could not but result in his embracing the Banking School ideas, and that his theory of money shows all the weaknesses of the Banking School, plus some that are peculiar to the labour theory of value. E. g. his proposition that causality runs from prices to quantity of money in a system with full-blooded coins, but the other way round in a system with inconvertible paper money, cannot be given any satisfying micro-economic justification; nor does his theory admit of any influence of monetary policy on Aggregate spending. Moreover, the labour theory of value leaves Marx without a theory of the rate of interest. His analysis of money as the "universal equivalent" makes one wonder why he did not consider the consequences of the transformation problem for the money commodity. To his credit, Marx very clearly saw why Say's law of markets in the form of Say's identity is not valid in a monetary economy. Marx's theory of money turns out to be a weak construction, because it cannot be made consistent with any acceptable assumptions about micro-economic decision-making. Blaug's dismissal of it as a mere repetition of the views of Ricardo and Mill does not, however, do justice to Marx.