Friedman and the Walrasian Equations of The Natural-Rate Counter-Revolution

From the 1930s, economic controversy has been a tale of three cities (Chicago and the two Cambridges) and three General Theories. In the 1930s, there were, in addition to the General Theory of Employment (Keynesian Macroeconomics), two other revolutionary attempts to don the mantle of generality: the General Theory of Method (the formalist revolution, involving structural econometrics and Walrasian general equilibrium) and the General Theory of Value (organised around the concept of monopolistic, or imperfect, competition). The Keynesian and formalist general revolutions became symbiotic and dominated the post-war landscape of economists. In contrast, the monopolistic competition revolution did not readily lend itself to general equilibrium formalism and, so far, has yet to achieve its promise (Tinbergen 1967, 268). ISBN: 033373045

Note on the Significance of the New Logic

Brief note explaining the content, importance, and historical context of my joint translation of Quine's The Significance of the New Logic with my single-authored historical-philosophical essay 'Willard Van Orman Quine's Philosophical Development in the 1930s and 1940s'

Monetary Policy, Deflation, and Economic History: Lessons for the Bank of Japan

The paper discusses Bank of Japan policy during the 1990s, especially the late 1990s, in the context of the historical experiences of the United States, Sweden, and Japan in the 1930s. Sharp differences exist between Japan in the 1990s and the 1930s environment; however, this paper takes the position that there are qualitative similarities which cannot be ignored in terms of financial distress, downward price trends, debate over appropriate central bank policy, and how legal independence may constrain appropriate central bank policy. The paper reviews the evolution of views about policy targets from the 1930s to the present to show how price stability reemerged as the primary policy target. Evidence on the success central banks have attained in achieving price stability is reviewed. The evidence shows that claims central banks have overemphasized controlling inflation at the expense of deflation are incorrect with the exception of Japan. The paper reviews the role of the Federal Reserve in the 1930s to show that failure to prevent deflation during the critical 1929?33 period had adverse impacts on the economy and resulted in rendering the Federal Reserve de facto dependent on the government despite its legal independence. The paper then considers the experiences of Japan and Sweden in the 1930s to provide counter-examples of how the U.S. economy might have responded to central bank policy designed to prevent deflation. In both cases, policies explicitly designed to reverse the downward movement in prices reduced the economic and financial distress in those countries compared to the United States. The paper draws implications from the historical record for Bank of Japan policy and suggests that more aggressive action would have been appropriate in the 1990s and that further institutional change toward inflation targeting should be considered.

Pioneering Price Level Targeting: The Swedish Experience 1931-1937

In September 1931, Sweden became the first country to make the stabilization of the domestic price level the official goal of its monetary policy, actually the only country that so far has adopted such an explicit price level target. Starting from the issues and concepts familiar from research and policy experience in the 1990s of inflation targeting - as contrasted to price level targeting - this paper examines the evolution of the Swedish price level targeting in the 1930s. We bring out a number of similarities and differences between price stabilization in the 1930s and in the 1990s.price level targeting;

Overvalued: Swedish Monetary Policy in the 1930s

This paper reconsiders the role of monetary policy in Sweden’s strong recovery from the Great Depression. The Riksbank in the 1930s is sometimes seen as an example of a central bank that was relatively innovative in terms of the conduct of monetary policy. To consider this analytically, we estimate a small-scale, structural general equilibrium model of a small open economy using Bayesian methods. We find that the model captures the key dynamics of the period surprisingly well. Importantly, our findings suggest that Sweden avoided the worst excesses of the depression by conducting conservative rather than innovative monetary policy. We find that, by keeping the Swedish krona undervalued to replenish foreign reserves, Sweden’s exchange rate policy unintentionally contributed to the Swedish growth miracle of the 1930s, avoiding a major slump in 1932 and enabling the country to benefit quickly from the eventual recovery of world demand.

Latin America and Foreign Capital in the Twentieth Century: Economics, Politics, and Institutional Change

Latin America began the twentieth century as a relatively poor region on the periphery of the world economy. One cause of a low level of income per person was capital scarcity. Long run growth via capital deepening requires either the mobilization of domestic capital through savings, or large inflows of foreign capital. Latin America's capital inflows were large by global standards at the century's turn, and even up to the 1930s. But after the 1930s, Latin America was not so favored by foreign capital as compared with other peripheral regions for example, the Asian economies. The Great Depression is conventionally depicted as a turning point in Latin America for commercial policy and protectionism, thus marking the onset of import substitution and a long-run increase in barriers in international goods markets. However, this paper argues that policy responses in the 1930s, and subsequent decades of relative economic retardation, can be better understood as the cause and effect of the creation of long-run barriers in international capital markets. To support this notion, I discuss the quantitative extent of these barriers and their effects on economic growth. As for causality, I argue that the political economy of institutional changes in the 1930s in the periphery might be understood in similar terms to those economic historians have used to discuss the macroeconomic crisis in the core. Such a political-economy model might thus have universal (rather than core-specific) use. It might predict the 'reactive' and 'passive' responses by periphery countries to external shocks, and the persistence of such shocks in the postwar period. In conclusion, I touch on the important implications of these ideas for the current situation in Latin America, where recent policy reforms aim to undo the last sixty years of isolation and reintegrate Latin America into the global economy.

"What Ended the Great Depression? Reevaluating the Role of Fiscal Policy"

Conventional wisdom contends that fiscal policy was of secondary importance to the economic recovery in the 1930s. The recovery is then connected to monetary policy that allowed non-sterilized gold inflows to increase the money supply. Often, this is shown by measuring the fiscal multipliers, and demonstrating that they were relatively small. This paper shows that problems with the conventional measures of fiscal multipliers in the 1930s may have created an incorrect consensus on the irrelevance of fiscal policy. The rehabilitation of fiscal policy is seen as a necessary step in the reinterpretation of the positive role of New Deal policies for the recovery.Fiscal Policy; Great Depression

The Cosmological Tests

Recent observational advances have considerably improved the cosmological tests, adding to the lines of evidence, and showing that some issues under discussion just a few years ago may now be considered resolved or irrelevant. Other issues remain, however, and await resolution before the great program of testing the relativistic Friedmann-Lemaitre model, that commenced in the 1930s, may at last be considered complete.Comment: 10 pages; conference proceedin

Unemployment and Capital Accumulation in Interwar Britain

The paper uses the Kalman filter method to estimate the time-varying NAIRU of interwar Britain and shows that, during the 1930s, the NAIRU drifted upwards by approximately four per cent. Also, the paper presents an imperfect competition model which predicts that, in the medium run, the NAIRU depends on labour market institutions, unanticipated total factor productivity growth and capital accumulation. Econometric evidence based on data from interwar Britain does not contradict this hypothesis. In particular, it supports the hypothesis that the rising trend of the NAIRU during the 1930s is partly due to a slowdown in capital accumulation demonstrating, thus, that adverse demand shocks may have long-lasting effects.