<p>In my critique of ‘monetary-base monetarism’ (Congdon, <span>2023</span>), I took the offending set of ideas to pivot on the claim that the change in the monetary base <i>by itself</i> determines inflation. I concentrated on the weaknesses of that approach to macroeconomic analysis. I did not develop my favoured alternative view, which might be called ‘broad-money monetarism’, where a key proposition is that changes in the quantity of money, broadly defined, determine inflation. But a potential debate between the two accounts of monetarism was implicit in my article.</p><p>Important issues are at stake. Consider the numbers for the four years to mid-2012, given in Table 1. In the Great Recession central banks adopted measures which had contrasting effects on the different money aggregates. Under the Basel III rules, being introduced from September/October 2008, they imposed higher capital-to-risk-asset ratios on the commercial banks. The change in capital regulation caused these banks to shrink risk assets. This would have led to a contraction in broad money if nothing else had been done.<sup>1</sup> Fortunately, something else was done. From late November 2008 the Federal Reserve embarked on large-scale purchases of assets from private sector non-banks (or ‘quantitative easing’), financed by the issue of cash reserves to the commercial banks. Such purchases added to bank deposits and stopped broad money from falling. But the issue of cash reserves led to an explosion of the monetary base. The Bank of England followed a few months after the Fed, with its QE programme beginning in March 2009.<sup>2</sup></p><p>Which concept of ‘money’ was the correct one to use in macroeconomic prognosis? Should economists have worried – in the four years under discussion – about the inflation perhaps threatened by the trebling of the base in the USA and its quadrupling in the UK? Or should they instead have been concerned that broad money was barely growing at all, signalling very low inflation and possibly even deflation?</p><p>On 15 November 2010, 23 top-ranking, mostly American economists wrote an ‘Open Letter to Ben Bernanke’ (then the Fed's chairman), which was reported in the <i>Wall Street Journal</i> (<span>2010</span>). Several of them had purported monetarist affiliations. The letter contained the following sentences:</p><p>To some extent my differences from Scott Sumner may be semantic, with the two of us merely – to use his words – ‘talking past each other’. But I suspect that substantive disagreements remain. I was dismayed that in his reply to my article he said:</p><p>It was exactly this sort of reasoning which provoked my article. Let us recall what actually happened in and after the Great Recession. In the USA the monetary base trebled and in the UK it quadrupled, even more dramatic surges than Sumner's doubling, yet in both countries inflation in the early 2010s was the lowest since the 1950s. Not only were the signatories to the Open Letter
{"title":"Rejoinder","authors":"Tim Congdon","doi":"10.1111/ecaf.12594","DOIUrl":"https://doi.org/10.1111/ecaf.12594","url":null,"abstract":"<p>In my critique of ‘monetary-base monetarism’ (Congdon, <span>2023</span>), I took the offending set of ideas to pivot on the claim that the change in the monetary base <i>by itself</i> determines inflation. I concentrated on the weaknesses of that approach to macroeconomic analysis. I did not develop my favoured alternative view, which might be called ‘broad-money monetarism’, where a key proposition is that changes in the quantity of money, broadly defined, determine inflation. But a potential debate between the two accounts of monetarism was implicit in my article.</p><p>Important issues are at stake. Consider the numbers for the four years to mid-2012, given in Table 1. In the Great Recession central banks adopted measures which had contrasting effects on the different money aggregates. Under the Basel III rules, being introduced from September/October 2008, they imposed higher capital-to-risk-asset ratios on the commercial banks. The change in capital regulation caused these banks to shrink risk assets. This would have led to a contraction in broad money if nothing else had been done.<sup>1</sup> Fortunately, something else was done. From late November 2008 the Federal Reserve embarked on large-scale purchases of assets from private sector non-banks (or ‘quantitative easing’), financed by the issue of cash reserves to the commercial banks. Such purchases added to bank deposits and stopped broad money from falling. But the issue of cash reserves led to an explosion of the monetary base. The Bank of England followed a few months after the Fed, with its QE programme beginning in March 2009.<sup>2</sup></p><p>Which concept of ‘money’ was the correct one to use in macroeconomic prognosis? Should economists have worried – in the four years under discussion – about the inflation perhaps threatened by the trebling of the base in the USA and its quadrupling in the UK? Or should they instead have been concerned that broad money was barely growing at all, signalling very low inflation and possibly even deflation?</p><p>On 15 November 2010, 23 top-ranking, mostly American economists wrote an ‘Open Letter to Ben Bernanke’ (then the Fed's chairman), which was reported in the <i>Wall Street Journal</i> (<span>2010</span>). Several of them had purported monetarist affiliations. The letter contained the following sentences:</p><p>To some extent my differences from Scott Sumner may be semantic, with the two of us merely – to use his words – ‘talking past each other’. But I suspect that substantive disagreements remain. I was dismayed that in his reply to my article he said:</p><p>It was exactly this sort of reasoning which provoked my article. Let us recall what actually happened in and after the Great Recession. In the USA the monetary base trebled and in the UK it quadrupled, even more dramatic surges than Sumner's doubling, yet in both countries inflation in the early 2010s was the lowest since the 1950s. Not only were the signatories to the Open Letter ","PeriodicalId":44825,"journal":{"name":"ECONOMIC AFFAIRS","volume":"43 3","pages":"441-444"},"PeriodicalIF":1.4,"publicationDate":"2023-09-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/ecaf.12594","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"50147990","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Accepting the principles of equal treatment and equality of opportunity as standards means that individuals should have the same chances and receive the same rewards. If there is no reason to maintain that these principles should not be decisive in the domain of sport, the consequences of accepting them must be accepted. Equality of opportunity, in particular, which may with respect to sport be termed ‘equality of competition’, raises some issues that are examined.
{"title":"Equality of competition: A consistent approach to equality of opportunity in sport","authors":"Jasper Doomen","doi":"10.1111/ecaf.12600","DOIUrl":"https://doi.org/10.1111/ecaf.12600","url":null,"abstract":"<p>Accepting the principles of equal treatment and equality of opportunity as standards means that individuals should have the same chances and receive the same rewards. If there is no reason to maintain that these principles should not be decisive in the domain of sport, the consequences of accepting them must be accepted. Equality of opportunity, in particular, which may with respect to sport be termed ‘equality of competition’, raises some issues that are examined.</p>","PeriodicalId":44825,"journal":{"name":"ECONOMIC AFFAIRS","volume":"43 3","pages":"340-352"},"PeriodicalIF":1.4,"publicationDate":"2023-09-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/ecaf.12600","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"50152527","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article draws on textual evidence from The Theory of Moral Sentiments and The Wealth of Nations to address mistaken interpretations of Adam Smith's fundamental concept of self-interest as greed that has been said to have had a corrosive influence on markets, commercial behaviour, and widening inequality. To the contrary, Smith's complex set of human motivations, including self-interest, his economic system that is based on free markets, and institutional frameworks governing productive property rights and the rule of law are argued to increase aggregate wealth, improve the position of those least well off, and maintain ethical social order.
{"title":"Adam Smith's moral foundations of self-interest and ethical social order","authors":"Mikko Arevuo","doi":"10.1111/ecaf.12592","DOIUrl":"https://doi.org/10.1111/ecaf.12592","url":null,"abstract":"<p>This article draws on textual evidence from <i>The Theory of Moral Sentiments</i> and <i>The Wealth of Nations</i> to address mistaken interpretations of Adam Smith's fundamental concept of self-interest as greed that has been said to have had a corrosive influence on markets, commercial behaviour, and widening inequality. To the contrary, Smith's complex set of human motivations, including self-interest, his economic system that is based on free markets, and institutional frameworks governing productive property rights and the rule of law are argued to increase aggregate wealth, improve the position of those least well off, and maintain ethical social order.</p>","PeriodicalId":44825,"journal":{"name":"ECONOMIC AFFAIRS","volume":"43 3","pages":"372-387"},"PeriodicalIF":1.4,"publicationDate":"2023-09-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/ecaf.12592","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"50129307","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The author commissioned a survey on the image of capitalism in 34 countries. In only six of these countries – led by Poland and the United States – do pro-capitalist attitudes dominate. Although approval of capitalism increases when the word ‘capitalism’ is omitted (and instead only described), even then a positive attitude dominates in only seven of 34 countries. The most frequently mentioned criticisms of capitalism are that capitalism is dominated by the rich and that capitalism leads to growing inequality. Respondents with higher incomes and higher levels of education, men, and those who classified themselves as being on the right of the political spectrum are less anti-capitalist or are more pro-capitalist than the population at large in most countries. In 33 countries, anti-capitalists tend to be more conspiracy-minded than pro-capitalists.
{"title":"Attitudes towards capitalism in 34 countries on five continents","authors":"Rainer Zitelmann","doi":"10.1111/ecaf.12591","DOIUrl":"10.1111/ecaf.12591","url":null,"abstract":"<p>The author commissioned a survey on the image of capitalism in 34 countries. In only six of these countries – led by Poland and the United States – do pro-capitalist attitudes dominate. Although approval of capitalism increases when the word ‘capitalism’ is omitted (and instead only described), even then a positive attitude dominates in only seven of 34 countries. The most frequently mentioned criticisms of capitalism are that capitalism is dominated by the rich and that capitalism leads to growing inequality. Respondents with higher incomes and higher levels of education, men, and those who classified themselves as being on the right of the political spectrum are less anti-capitalist or are more pro-capitalist than the population at large in most countries. In 33 countries, anti-capitalists tend to be more conspiracy-minded than pro-capitalists.</p>","PeriodicalId":44825,"journal":{"name":"ECONOMIC AFFAIRS","volume":"43 3","pages":"353-371"},"PeriodicalIF":1.4,"publicationDate":"2023-09-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/ecaf.12591","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47171164","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The fiscal theory of the price level. By John H Cochrane. Princeton University Press. 2023. 584 pp. £84.00 (hbk). ISBN: 978-0691242248. £67.20 (ebk). ISBN: 978-0691243245","authors":"Michael Ben-Gad","doi":"10.1111/ecaf.12585","DOIUrl":"10.1111/ecaf.12585","url":null,"abstract":"","PeriodicalId":44825,"journal":{"name":"ECONOMIC AFFAIRS","volume":"43 2","pages":"305-307"},"PeriodicalIF":1.4,"publicationDate":"2023-07-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49030476","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article examines the impact of EU Allowance (EUA) prices on core inflation in the Eurozone between 2005 and 2022. The empirical results suggest that a positive shock to the EUA price led to higher long-run inflation expectations and core inflation. This implies that the rise in EUA prices can be passed on to consumers and enterprises, leading to an increase in production costs and consumer prices. And, while a positive shock to EUA prices may promote investment in renewable energy in the short term, the impact is not statistically significant and does not last long. The results suggest considerable potential for European policymakers to re-examine policy mechanisms to accelerate renewable energy investment and maintain price stability in the medium term.
{"title":"The impact of rising EU Allowance prices on core inflation in the Eurozone","authors":"Hideki Nishigaki","doi":"10.1111/ecaf.12588","DOIUrl":"10.1111/ecaf.12588","url":null,"abstract":"<p>This article examines the impact of EU Allowance (EUA) prices on core inflation in the Eurozone between 2005 and 2022. The empirical results suggest that a positive shock to the EUA price led to higher long-run inflation expectations and core inflation. This implies that the rise in EUA prices can be passed on to consumers and enterprises, leading to an increase in production costs and consumer prices. And, while a positive shock to EUA prices may promote investment in renewable energy in the short term, the impact is not statistically significant and does not last long. The results suggest considerable potential for European policymakers to re-examine policy mechanisms to accelerate renewable energy investment and maintain price stability in the medium term.</p>","PeriodicalId":44825,"journal":{"name":"ECONOMIC AFFAIRS","volume":"43 2","pages":"245-264"},"PeriodicalIF":1.4,"publicationDate":"2023-07-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45956605","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Hayek: A Life, 1899–1950 By Bruce Caldwell and Hansjörg Klausinger. University of Chicago Press. 2022. pp. 824. £35.00 (hbk). ISBN: 978–0226816821. £25.99 (ebk). ISBN: 978–0226816838","authors":"Pedro Schwartz","doi":"10.1111/ecaf.12580","DOIUrl":"10.1111/ecaf.12580","url":null,"abstract":"","PeriodicalId":44825,"journal":{"name":"ECONOMIC AFFAIRS","volume":"43 2","pages":"298-302"},"PeriodicalIF":1.4,"publicationDate":"2023-07-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42640756","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Rethinking economics as social theory By Richard E. Wagner, Edward Elgar. 2022. pp. 208. £85.00 (hbk). ISBN: 978–1802204759. £25.00 (ebk). ISBN: 978–1802204766","authors":"Eric Jones","doi":"10.1111/ecaf.12572","DOIUrl":"10.1111/ecaf.12572","url":null,"abstract":"","PeriodicalId":44825,"journal":{"name":"ECONOMIC AFFAIRS","volume":"43 2","pages":"303-304"},"PeriodicalIF":1.4,"publicationDate":"2023-07-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45549581","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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