100 books like The Purchasing Power Of Money

Wicksell had social justice at heart.

His motivation to investigate money concerned the welfare impact of inflation/deflation on purchasing power.

His model has capital and resources flowing whither returns are highest and bankers chasing the highest interest rate on loans, entrepreneurs, the best profit rate on investment, and merchants, the best price for products.

As pure credit, money can unceasingly feed demand for loans, generating the cumulative process whereby loan rate increases add to costs of production and prices. Wicksell’s conclusion: if loan rates lag behind the rate of profit, prices rise.

For stability’s sake, when prices are rising/falling, there must be an increase/decrease in the interest rate.

Central banks implement this rule of thumb, but, alas, without grasping Wicksell’s doubts about whether the greedy banking system considers public interest.

Take Hayek’s market economy as a Bohemian accordion orchestra.

As its instruments produce music, each elongates, pulls in air (analogous to money), and compresses, expresses air (money). Air-in (savings) is equal to air-out (investment). Fluctuating elongations and compressions are an essential feature of the orchestra (the economy).

For Hayek, interference with harmonious accordion (economic) activity infusing or restricting air (money) would spoil the music.

Economic fluctuations stem from preferences, spending for present enjoyment, or saving for future gains. Relative demands for end products or capital impact relative prices, costs, and returns, affecting savings/investment. Investment money, as IOUs, flies where returns are highest.

Hayek engages readers to prove that bank interventions’ tinkering with money is as capable of producing compassionate social outcomes as free individuals using their earnings as they wish.

Hicks envisaged an economy in which individuals choose to offer labour for income to purchase products of their effort or to spend time in uncompensated leisure.

His is a theorical economy: individuals and firms interact to determine current and future supplies and demands. It establishes the laws governing the price system regulating exchange and production.

In this world of transparent, free movement of goods and resources without government, regulations, banks, and unions, there is no room for monopolies or capital accumulation. 

Money as intermediary is simply a unit of account. Growth is the outcome of needs, efforts, and mutual cooperation.

Value and Capital, a jewel, is the core of current microeconomics, but Hicks’ economy, in which inflation and income disparities are non-issues, is not a capitalist but a market one; ironically present microeconomists conflate the two.

Most economists associate volume of money with price-level (inflation/deflation), not Keynes.

For him, a macro price-level does not reveal the unsynchronized dynamics affecting the prices of its components: commodities, labor, capital, raw materials, profits; it must be decomposed.

When FunCorp invests in a rollercoaster, its decision is based on present costs and future returns (ticket sales, performance, stock options, etc.).

Windfall profits will lead to more expansion; losses, to curtailed activity. Both expansion, contingent on easy credit, or recession, on the tightening of credit, depend on bankers’ use of individuals’ savings and their creation of more deposits.

For Keynes, an institutionalised banking system is essential for a modern economy but he advocated, in the public interest, for strict rules on bankers’ abuse of credit, to mitigate the inflation/deflation rollercoaster. 

I am especially fond of this book because I edited it with a dear friend of mine, Prof. Mauro Baranzini, who, despite our different analytical backgrounds has always supported and encouraged my research in monetary macroeconomics.

The book lays the foundations for a fruitful collaboration among economists who share the same objective: to explain satisfactorily and comprehensively the disequilibria hampering the smooth development of our economies.

The works presented in this volume are a serious attempt to clarify the terms of the problem of inflation and unemployment.

They must be seen as contributions to building a modern theory of monetary and structural macroeconomics.

Sargent shows how the monetary excesses leading to inflation have often been connected to using money to cover government budgetary shortfalls. This is vividly illustrated in chapter 3 by the way that ending the post-World War I hyperinflations required fundamental fiscal as well as monetary reform. 

Sargent also convincingly demonstrates the power of expectations and the idea that, as government behavior changes, people’s behavior adjusts as well.

You really cannot argue with the Ancient Chinese proverb included on the first page: “The government has strategies. The people have counterstrategies.” Amidst the rich trove of historical cases, my favorite remains chapter 6’s interpretation of the interactions between President Ronald Reagan and a recalcitrant US Congress in the early 1980s as a “game of chicken.” 

I recommend this book because it deals with the main problems faced by capitalist economies, inflation, and unemployment, in a new and original way, and provides the theoretical foundations for quantum macroeconomic analysis.

Orthodox economics has failed to provide a consistent insight into the pathologies blighting our economies, and both the academic and the economic worlds badly need an alternative approach to convincingly diagnose these pathologies, where they come from, and how they can eventually be disposed of.

Schmitt’s volume provides a revolutionary explanation of the cause of today’s economic disorder as well as an innovative solution enabling for the passage from disorder to order.

During my graduate school years at Carnegie-Mellon University, I was exposed to Thomas Sargent’s Macroeconomic Theory, which taught me how to work with difference equations.

More importantly, it inculcated the notion in me that economic theory and econometrics are inseparable notions. The approach that I attained from this book together with the courses that I took at Carnegie-Mellon’s Graduate School of Industrial Administration - GSIA as it was called then – have colored by my research outlook and my research itself over the years.

While Thomas Sargent produced many other graduate textbooks on macroeconomics in future years, I might say this was the most influential one (for me) in terms of the fluidity of its writing and its attempt to bridge macroeconomic theory and empirical research. 

This is a collected volume that Kevin Hoover of Duke University put together to provide a philosophical and methodological viewpoint on the empirical and quantitative research that was emerging from the Universities of Chicago, Minnesota, Carnegie-Mellon, Rochester in the 1970s and 1980s.

My own article, “Time-to-Build and Aggregate Fluctuations: Some New Evidence”, originally published in International Economic Review in 1989, was re-printed in this volume. Why was this article re-printed in this volume? It showed that a tightly-specified representative consumer model of aggregate fluctuations, regardless of the theoretical enhancements and econometric approach, could not explain series like aggregate output, consumption and investment jointly with aggregate hours.

While Kevin Hoover continued his methodological research on causality, micro-foundations of macroeconomics and the like, this research led me to delve into micro data models of consumption and labor supply with my co-author Robert Miller from CMU to model individual choices under aggregate shocks.     

This was an exciting reading for me. I find a great connection with Akerlof and Shiller’s book Animal Spirits.

This book admits, that people might have some cognitive limitations and use simple forecasting rules in order to make decisions with resulting implications at the aggregate level. As a result, there is great potential for the emerging, yet undiscovered discipline of behavioral macroeconomics.

Personally, for me, revolutionary element is the combination of bounded rationality and willingness to learn from past mistakes and consequent switch to better rules. This book introduces special behavioral macroeconomic model based on the dynamics of endogenous animal spirits, in which case waves of optimism and pessimism are responsible for the business cycle itself.

I find especially interesting the part devoted to the discussion of how central banks should approach inflation targeting in behavioral models with animal spirits.