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Book part
Publication date: 30 September 2016

Scott Burns

For nearly 80 years, the field of macroeconomics has largely been shaped by the aftermath of the Keynesian revolution. Many economists have argued that this revolution and the…

Abstract

For nearly 80 years, the field of macroeconomics has largely been shaped by the aftermath of the Keynesian revolution. Many economists have argued that this revolution and the subsequent internal and external disputes it has sparked have had the unfortunate side effect of crowding out much of what was good in macro-level analysis before it, leading to the dissatisfactory state of macroeconomics we have today. In the search for alternative paths for macroeconomics, I focus on two separate but compatible traditions: monetary disequilibrium (MD) theory and the Austrian business cycle theory (ABCT). I argue that scholars in these traditions employed a far richer micro-theoretic explanation for the business cycle well before Keynes’s General Theory. Unfortunately, their ideas were not united in time to mount a sufficient counterattack to the Keynesian crusade. My goal is to unite the best elements of these two traditions by providing what I believe is the “missing link” that can help connect these alternative paths: free banking theory.

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Research in the History of Economic Thought and Methodology
Type: Book
ISBN: 978-1-78560-962-6

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Article
Publication date: 1 March 1988

L.B. Yeager

Austrian views on money and the gold standard are consonant with the general characteristics of the school. First, Austrians are concerned with the complete picture, with how a…

222

Abstract

Austrian views on money and the gold standard are consonant with the general characteristics of the school. First, Austrians are concerned with the complete picture, with how a whole economic system and alternative sets of institutions function. They are alert to the question of unplanned order and of how the decentralised decisions and specialised activities of millions of people can mesh without central planning. They investigate how the market and prices function as a vast communications system and computer, transmitting information and incentives and so enlisting knowledge scattered over many millions of minds that would otherwise necessarily go to waste. They recognise why accurate economic calculation is impossible under socialism. Second, the Austrians appreciate the implications of incomplete, imperfect and scattered knowledge and also the implications of change and unpredictability in human affairs. They pay attention to disequilibrium, to processes as well as end positions, and to entrepreneurial altertness and creativity. Instead of supposing, for example, that cost curves and demand curves are somehow “given” to business decision makers, they recognise it as one of the functions of the competitive process to press for discovery of ways to get the cost curves down — if one speaks of such curves at all. Third, Austrians have certain methodological predilections. They reject the tacit view of economic activity as the result of interplay among objective conditions and impersonal forces. They take pains to trace their analyses back to the subjective perceptions, decisions and actions of individuals trying to cope with a complex and unpredictably changeable world; they recognise introspection as one legitimate source of the facts underpinning economic theory. (While thus practising methodological individualism, they do not subordinate the big question of system‐wide co‐ordination to an excessively narrow focus on the administration of individual firms and households.) Finally, although Austrians like to think of their economics as value‐free and not logically tied to any particular policy position, their insights into positive economics, coupled with plausible value judgements of a humanitarian and individualistic nature, undeniably do lead them to favour free markets.

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Journal of Economic Studies, vol. 15 no. 3/4
Type: Research Article
ISSN: 0144-3585

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Book part
Publication date: 19 February 2020

Samuel Demeulemeester

This chapter discusses the “seigniorage argument” in favor of public money issuance, according to which public finances could be improved if the state more fully exercised the…

Abstract

This chapter discusses the “seigniorage argument” in favor of public money issuance, according to which public finances could be improved if the state more fully exercised the privilege of money creation, which is, today, largely shared with private banks. This point was made in the 1930s by several proponents of the “100% money” reform scheme, such as Henry Simons of the University of Chicago, Lauchlin Currie of Harvard and Irving Fisher of Yale, who called for a full-reserve requirement in lawful money behind checking deposits. One of their claims was that, by returning all seigniorage profit to the state, such reform would allow a significant reduction of the national debt. In academic debates, however, following a criticism first made by Albert G. Hart of the University of Chicago in 1935, this argument has generally been discarded as wholly illusory. Hart argued that, because the state, under a 100% system, would be likely to pay the banks a subsidy for managing checking accounts, no substantial debt reduction could possibly be expected to follow. The 100% money proponents never answered Hart’s criticism, whose conclusion has often been considered as definitive in the literature. However, a detailed study of the subject reveals that Hart’s analysis itself appears to be questionable on at least two grounds: the first pertains to the sources of the seigniorage benefit, the other to its distribution. This chapter concludes that the “seigniorage argument” of the 100% money authors may not have been entirely unfounded.

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Research in the History of Economic Thought and Methodology: Including a Symposium on Public Finance in the History of Economic Thought
Type: Book
ISBN: 978-1-83867-699-5

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Book part
Publication date: 28 April 2016

Nicolás Cachanosky and Peter Lewin

In this paper, we study financial foundations of Austrian business cycle theory (ABCT). By doing this, we (1) clarify ambiguous and controversial concepts like roundaboutness and…

Abstract

In this paper, we study financial foundations of Austrian business cycle theory (ABCT). By doing this, we (1) clarify ambiguous and controversial concepts like roundaboutness and average period of production, (2) we show that the ABCT has strong financial foundations (consistent with its microeconomic foundations), and (3) we offer examples of how to use the flexibility of this approach to apply ABCT to different contexts and scenarios.

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Article
Publication date: 1 February 1982

ABEL L. COSTA FERNANDES

The purpose of this paper is to review the literature on the determinants of the exchange‐rate by examining the flow theory approach, purchasing power parity theory, the monetary…

505

Abstract

The purpose of this paper is to review the literature on the determinants of the exchange‐rate by examining the flow theory approach, purchasing power parity theory, the monetary approach and the assets market approach.

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Studies in Economics and Finance, vol. 6 no. 2
Type: Research Article
ISSN: 1086-7376

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Monetary Policy, Islamic Finance, and Islamic Corporate Governance: An International Overview
Type: Book
ISBN: 978-1-80043-786-9

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Article
Publication date: 1 March 1993

Elsworth D. Beach, Nancy Cottrell Kruse and Noel D. Uri

Investigates the doctrine of Relative Purchasing Power Parity.Mixed evidence is found supporting the concept when using a methodanalogous to that used by Lucas in testing the…

500

Abstract

Investigates the doctrine of Relative Purchasing Power Parity. Mixed evidence is found supporting the concept when using a method analogous to that used by Lucas in testing the quantity theory of money. Relative Purchasing Power Parity is not consistently rejected in the long run between Canada and the United States and between Japan and the United States using quarterly data covering two separate periods: 1957 QI‐1973 QII, and 1973 QIII‐1989 QIV. Given the inconclusive results associated with relying on the methodology of Lucas, considers two alternatives: first, where the requisite smoothed time series are obtained via appropriate autoregressive integrated moving average filters and, second, where cointegration techniques are employed. In these instances, the results are unequivocal. Relative Purchasing Power Parity does not hold.

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Journal of Economic Studies, vol. 20 no. 3
Type: Research Article
ISSN: 0144-3585

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Book part
Publication date: 17 October 2014

Marta Podemska-Mikluch

The recurring implementation and continuous maintenance of price controls implies a deep incongruence between public policy and economic common sense. Yet, economists do not tire…

Abstract

The recurring implementation and continuous maintenance of price controls implies a deep incongruence between public policy and economic common sense. Yet, economists do not tire of concluding their papers with policy recommendations as if oblivious to the ineffectiveness of their efforts. By assuming that policy is an object of choice, economists have no alternative but to naively hope for a decision-maker sensitive to economic logic. An alternative approach is to think of policy, not as an object of choice but as an outcome of a competitive process. From this perspective, the often-lamented disregard for economic principles is not a characteristic of a deficient policymaker, but a systemic quality of institutional arrangements. I illustrate my argument with the analysis of the implementation of rigid prices for reimbursed pharmaceuticals in Poland.

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Entangled Political Economy
Type: Book
ISBN: 978-1-78441-102-2

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Article
Publication date: 24 October 2019

James Lee Caton

The development of blockchain and cryptocurrency may alleviate the economic strain associated with recession. Economic recessions tend to be aggregate-demand driven, meaning that…

807

Abstract

Purpose

The development of blockchain and cryptocurrency may alleviate the economic strain associated with recession. Economic recessions tend to be aggregate-demand driven, meaning that they are caused by fluctuations in the supply of or demand for money. Holding monetary policy as solution assumes that stability must arise from outside of the economic system. Under a policy regime that allows innovations in blockchain to develop, blockchain technology may promote a money supply that is responsive to changes in demand to hold money. The purpose of this paper is to suggest that cryptocurrencies present an opportunity to profitably implement rules that promote macroeconomic stability. In particular, cryptocurrency that is asset-backed may provide a means for cheaply attaining liquidity during a crisis.

Design/methodology/approach

The role of cryptocurrency in promoting macroeconomic equilibrium is approached through the lens of monetary theory. Moves away from macroeconomic equilibrium necessitate either a change in the average price of money or a change in the quantity of money, or a change in portfolio demand for money. Cryptocurrency promotes an increase, however this requires the alignment of policy regulating the use of cryptocurrency, reduction in taxes placed on the use of cryptocurrency and cryptocurrency protocol.

Findings

Cryptocurrency is unlikely to become legal tender, but it may alleviate macroeconomic fluctuations as a near money that provides liquidity and whose supply is sensitive to changes in demand to hold money and money-like substitutes. This role might be inhibited if policy stifles the development of cryptocurrencies and blockchain technology.

Research limitations/implications

New financial innovations like cryptocurrencies can be analyzed applying the equation of exchange in light of the mechanics of money creation under conditions of disequilibrium. Monetary disequilibrium may be promoted by policy that causes bottlenecks in financial markets.

Originality/value

Theory of monetary disequilibrium has broad implications for the development and regulation of financial markets. This theory has not been applied to the development of cryptocurrency markets.

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Journal of Entrepreneurship and Public Policy, vol. 9 no. 2
Type: Research Article
ISSN: 2045-2101

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Book part
Publication date: 22 February 2010

William N. Butos

Purpose – Overview of Hayek's cognitive theory and the contributions of chapters.Methodology/approach – Perspective on significance of Hayek's cognitive theory for the social…

Abstract

Purpose – Overview of Hayek's cognitive theory and the contributions of chapters.

Methodology/approach – Perspective on significance of Hayek's cognitive theory for the social sciences.

Findings – Hayek's cognitive theory provides insight into his oeuvre; more importantly, it is relevant for social theory in its own right.

Research limitations/implications – Hayek's cognitive theory warrants further attention by economists and social theorists interested in evolutionary social processes.

Originality/value of paper – To counter a widespread view that the contribution to economics and social science of Hayek's cognitive theory is largely confined to methodology. Hayek's cognitive theory also provides a useful framework for furthering the understanding of evolution within the social realm.

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The Social Science of Hayek's ‘The Sensory Order’
Type: Book
ISBN: 978-1-84950-975-6

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