Nobel Laureate T. C. Koopmans wrote one of the most famous economics articles of the twentieth century, “Measurement Without Theory,” a devastating review of an important, and in many ways useful and meritorious, study of business cycles by two of the fathers of empirical business-cycles research, Arthur F. Burns and Wesley C. Mitchell, Measuring Business Cycles. Burns was then the head of the National Bureau of Economic Research, which had been founded by Mitchell, Burns’s mentor, to promote the empirical study and measurement of business cycles. Koopmans, who was then head of the Cowles Comm ..read more

Clara Mattei, associate professor of economics at the New School for Social Research, recently published a book, The Capital Order: How Economists Invented Austerity and Paved the Way to Fascism, (University of Chicago Press) in which she argues that the fiscal and monetary austerity imposed on Great Britain after World War I to restore the gold standard at the prewar parity of pound to the dollar provided a model for austerity policies imposed by Mussolini in Italy when he took control of the Italian state in the early 1920s. In making her argument, Mattei identifies Hawtrey, Director of Fina ..read more

In my previous post, I explained how the real-bills doctrine originally espoused by Adam Smith was later misunderstood and misapplied as a policy guide for central banking, not, as Smith understood it, as a guide for individual fractional-reserve banks. In his recent book on the history of the Federal Reserve, Robert Hetzel recounts how the Federal Reserve was founded, and to a large extent guided in its early years, by believers in the real-bills doctrine. On top of their misunderstanding of what the real-bills doctrine really meant, they also misunderstood the transformation of the internati ..read more

            Robert Hetzel, a distinguished historian of monetary theory and of monetary institutions, deployed his expertise in both fields in his recent The Federal Reserve: A New History. Hetzel’s theoretical point departure is that the creation of the Federal Reserve System in 1913 effectively replaced the pre-World War I gold standard, in which the value of the dollar was determined by the value of gold into which a dollar was convertible at a fixed rate, with a fiat-money system. The replacement did not happen immediately upon creatio ..read more

One of my goals when launching this blog in 2011 was to revive interest in the important, but unfortunately neglected and largely forgotten, contributions to monetary and macroeconomic theory of Ralph Hawtrey. Two important books published within the last year have focused attention on Ralph Hawtrey: The Federal Reserve: A New History by Robert Hetzel, and The Capital Order by Clara Elizabeth Mattei. While Hetzel’s discussion of Hawtrey’s monetary theory of the Great Depression is generally positive, it criticizes him for discounting, unlike Milton Friedman, the efficacy of open-market operati ..read more

UPDATE: My concluding paragraph was inadverently deleted from my post, so even if you’ve already read the post, you may want to go back and read my concluding paragraph. Last December, Nathan Tankus wrote an essay for his substack site defending Arthur Burns and his record as Fed Chairman in the 1970s when inflation rose to double digits, setting the stage for Volcker’s shock therapy in 1981-82. Tankus believes that Burns has been blamed unfairly for the supposedly dreadful performance of the economy in the 1970s, a decade that probably ranks second for dreadfulness, after the 1930s, in the ec ..read more

I have just submitted the paper to the European Journal of the History of Economic Thought. The updated version is not substantively different from the previous version, but I have cut some marginally relevant material and made what I hope are editorial improvements. Here’s a link to the new version. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4260708 Any comments, questions, criticisms or suggestions would be greatly appreciated. I hope to post a revised version of my paper “Between Walras and Marshall: Menger’s Third Way” on SSRN within the next week or two. In my previous post I cop ..read more

Last November I posted a revised section of a paper I’m now working on an earlier version of which is posted on SSRN. I have now further revised the paper and that section in particular, so I’m posting the current version of that section in hopes of receiving further comments, criticisms, and suggestions before I submit the paper to a journal. So I will be very grateful to all those who respond, and will try not to be too cranky in my replies. I         Fisher’s model and the No Favorable Surprise Assumption Unsuccessful attempts to prove, under standard ..read more

A couple of days ago, I wrote post gently (I hope) chiding Olivier Blanchard for what seemed to me to be a muddled attempt to attribute inflation to conflicts between various interest groups (labor, capital, creditors, debtors) that the political system is unable, or unwilling, to resolve,leavin, those conflicts to be addressed, albeit implicitly, by the monetary authority. In those circumstances, groups seek to protect, or even advance their interests, by seeking prices increases for their goods or services, triggering a continuing cycle of price and wage increases, aka a wage-price spiral. M ..read more

Peter Howitt, whom I got to know slightly when he spent a year at UCLA while we were both graduate students, received an honorary doctorate from Côte d’Azur University in September. Here is a link to the press release of the University marking the award. Peter wrote his dissertation under Robert Clower, and when Clower moved from Northwestern to UCLA in the early 1970s, Peter followed Clower as he was finishing up his dissertation. Much of Peter’s early work was devoted to trying to develop the macroeconomic ideas of Clower and Leijonhufvud. His book The Keynesian Recovery collects those impor ..read more