Monetary theory

Money as Metaphor 1 - Money is Justice, the origins of money and coinage

by Joe Cribb

Royal Numismatic Society Presidential Address 2005 (1 of 5, but no. 5 has not yet been published), Numismatic Chronicle 2005

Monetary policy in the General Theory

by Nazim Ekinci

Keynes: revolutionary or radical

by Brendan Sheehan

Three-quarters of a century ago the General Theory of Employment, Interest and Money by John Maynard Keynes was... more Three-quarters of a century ago the General Theory of Employment, Interest and Money by John Maynard Keynes was published. This anniversary provides an opportunity to reflect on Keynes’ most significant contributions to economics. The paper has three key objectives. The first is to demonstrate how Keynes departs from the classical orthodoxy – both theoretically and in policy terms. The paper carefully explains classical macro-economic theory – especially the special assumptions on which it relies – and the conservative policy agenda that it generates. The second objective is to introduce Keynes’ revolutionary approach to macroeconomics – formulated round the principle of effective demand - and the potentially radical policy proposals he recommends. The study of effective demand provides insights about how the actual economy operates, once the special classical assumptions are relaxed. In policy terms, Keynes addresses three urgent priorities: curing an economic depression, preventing war-time inflation and promoting post-war prosperity over the long-term. The final objective is to critically assess Keynes’ credentials as a theoretical revolutionary and policy radical. This assessment concludes that Keynes is a mild theoretical revolutionary, content to make good the deficiencies in classical orthodoxy. He neither moves beyond the paradigm of universal scarcity nor appreciates the ever-present threat of under-consumption. He is also a timid radical; his most rebellious instincts are restricted to proposing socialised investment and tight capital controls.

Keynes: revolutionary or radical

by Brendan Sheehan

Three-quarters of a century ago the General Theory of Employment, Interest and Money by John Maynard Keynes was... more Three-quarters of a century ago the General Theory of Employment, Interest and Money by John Maynard Keynes was published. This anniversary provides an opportunity to reflect on Keynes’ most significant contributions to economics. The paper has three key objectives. The first is to demonstrate how Keynes departs from the classical orthodoxy – both theoretically and in policy terms. The paper carefully explains classical macro-economic theory – especially the special assumptions on which it relies – and the conservative policy agenda that it generates. The second objective is to introduce Keynes’ revolutionary approach to macroeconomics – formulated round the principle of effective demand - and the potentially radical policy proposals he recommends. The study of effective demand provides insights about how the actual economy operates, once the special classical assumptions are relaxed. In policy terms, Keynes addresses three urgent priorities: curing an economic depression, preventing war-time inflation and promoting post-war prosperity over the long-term. The final objective is to critically assess Keynes’ credentials as a theoretical revolutionary and policy radical. This assessment concludes that Keynes is a mild theoretical revolutionary, content to make good the deficiencies in classical orthodoxy. He neither moves beyond the paradigm of universal scarcity nor appreciates the ever-present threat of under-consumption. He is also a timid radical; his most rebellious instincts are restricted to proposing socialised investment and tight capital controls.

New estimates of U.S. currency abroad, the domestic money supply and the unreported economy

by Edgar Feige

Forthcoming in Crime, Law and Social Change, April, 2012

Despite financial innovations that have created important new substitutes for cash usage, per capita holdings of U.S.... more Despite financial innovations that have created important new substitutes for cash usage, per capita holdings of U.S. currency amount to $2950. Yet American households and businesses admit to holding only 15 percent of the currency stock, leaving the whereabouts of 85 percent unknown. Some fraction of this unaccounted for currency is held abroad (the dollarization hypothesis) and some is held domestically undeclared, as a store of value and a medium of exchange for transactions involving the production and distribution of illegal goods and services, and for transactions earning income that is not reported to the IRS (the unreported economy hypothesis). We find that the percentage of U.S. currency currently held overseas is between 30-37 percent rather than the widely cited figure of 65 percent. This finding is based on the official Federal Reserve/Bureau of Economic Analysis data which is a proxy measure of the New York Federal Reserve’s (NYB) “confidential” data on wholesale currency shipments abroad. We recommend that the NYB data be aggregated so as to circumvent confidentiality concerns, and be made readily available to all researchers in order to shed greater light on the questions of how much U.S. currency is abroad and on the particular location of overseas U.S. dollars. The newly revised official estimates of overseas currency holdings are employed to determine the Federal Reserve’s seigniorage earnings from 1964-2010, which have provided a $287 billion windfall for U.S. taxpayers. Overseas currency stock data are also used to derive estimates of the domestically held stock of currency as well as narrow and broad measures of domestic monetary aggregates. These domestic monetary aggregates are believed to be better predictors of future economic activity than traditional monetary aggregates and are tested to determine their ability to predict fluctuations in real output and prices. Domestic cash holdings are finally used to estimate the size of the U.S. unreported economy as measured by the amount of income that is not properly reported to the IRS. By 2010, we estimate that legal and illegal source unreported income” is $1.9 - $2.4 trillion, implying a “tax gap” in the range of $400- $550 billion. Currently, we estimate that 18-23 percent of total reportable income is not properly reported to the IRS.

Krugman Meets Marx and Keynes at the Baby-sitting Co-op

by Yavuz Yasar

The solution for the economic crisis

by Wilfred Berendsen

draft only

This paper gives not only the causes of the financial world crisis in the years 2008 and 2010, but also the sole right... more This paper gives not only the causes of the financial world crisis in the years 2008 and 2010, but also the sole right solution to solve. Apart from that, i hope to have made clear enough in this paper that for solving the crisis, a whole new way of dealing with our society at large will be needed. Meaning that our economic system will have to be changed rather drastically to meet the new ways of doing of our current societies. I will most probably explore more about this in future writings from me. For now, it is important to state that inflation and my solution are NOT connected in any ways, IF the rules of the money game are  changed. Inflation is the LOGICAL result of INCOMPLETE understandings about money and economy. It can be prevented quite easily. Although the last couple of years have seen a MUCH higher inflation than the ones reflected in the mathematical figures normally used.

MACROFOUNDATIONS FOR A (NEAR) 2% INFLATION TARGET

by Christophe Faugere

Economists have argued that a long-term inflation target near 2% is optimal (Summers, 1991; Fischer, 1996; Goodfriend,... more Economists have argued that a long-term inflation target near 2% is optimal (Summers, 1991; Fischer, 1996; Goodfriend, 2002; Coenen et al., 2003; Bernanke, 2003). However, these arguments are really about why a low positive inflation rate is ideal to avoid a deflationary trap, not explaining why the specific value of 2% (or a value near it) happens to be the optimal long-run inflation rate. In line with the transaction motive literature (Baumol, 1952 and Tobin, 1956), I postulate that new forms of money and technological progress generate cost savings in the transaction technology by comparison to barter. I derive the optimal velocity of money, which depends on real GDP/capita and the net return on depository institutions’ assets. As long as progress is on average biased towards new forms of money, the velocity of money will grow at a pace slower than long-term real GDP/capita growth; i.e. less than 2%. The empirical tests using Johansen’s (1995) VECM approach for the U.S. over the period 1959-2007 confirm that this is indeed the case. Along with a parameter representing the type of bias in the technical progress affecting transactions, the depository institutions’ overall mean leverage ratio also appears as a key parameter in the long-run equilibrium equation describing the behavior of the velocity of narrow money (M1, M1RS and M1S). I show that a ‘naïve’ Friedman k-percent monetary rule that aims at growing the money supply at the same rate as real GDP naturally leads to a rate of inflation equal to the rate of velocity growth. Hence, setting an inflation target near but below 2% makes economic sense. In spite of previously held beliefs, a money growth objective is compatible with an interest-targeting objective; i.e. a derived Taylor (1993) type rule. A Taylor rule that embeds the optimal inflation target defined here is more flexible to account for possible changes in velocity vs. a pure money growth rule.

The Logic of the Currency Board monetary regime

by Momtchil Karpouzanov

published in the EUL Journal of Social Sciences, Vol. I, n°1 (December 2010), pp. 72-86

The Currency Board (CB) is a particular monetary regime combining legally set fixed exchange rate and full coverage of... more The Currency Board (CB) is a particular monetary regime combining legally set fixed exchange rate and full coverage of domestic currency by highly liquid holdings in a stable reserve currency with an explicit relinquishment of active monetary policy by national monetary authorities aiming at enhancing and making this commitment more credible. It exhibits the theoretical functioning of an automatic mechanism linking the performances of the domestic economy as represented by the balance of payments dynamics providing reserve currency to the Currency Board and the money supply dynamics based on it. In the short-run such a political decision largely contributes to stabilisation policies and exhibits significantly positive results in fighting inflation, reflating economic activity and setting hard budget constraints to all economic agents.
Although it is often related as the hardest of all pegs, it is argued here that it is but a mere monetary substitution of external to domestic currency thus breaking the necessary or even vital link provided by the monetary procedure, as a relation between the monetary product and the economic behaviour of economic agents. Therefore the CB introduces a relative-price distortion through a continuous real exchange rate appreciation. It consists therefore in hiding and postponing economic troubles amplified by the necessity of an exit strategy towards discretionary managed monetary policy by the Central Bank or dollarization/euroisation and total dependence on foreign discretionary monetary policy.

Gold staters from the Rezhantsi Hoard (IGCH 411), Pernik district, West Bulgaria.

by Evgeni Paunov

In: K. Rabadjiev (ed.), Stephanos Archeologicos in honorem Professoris Ludmili Getov (Studia Archaeologica Universitatis Serdicensis, Suppl. IV), Sofia 2005, 555–562.

Five perfectly preserved staters kept in the numismatic collection of the Museum of History at the town of Pernik (SW... more Five perfectly preserved staters kept in the numismatic collection of the Museum of History at the town of Pernik (SW Bulgaria), are published in this paper. Three are struck in the name Alexander the Great and two of Philip III Arrhidaeus of the type of Philip II. They were acquired for the Museum in 1972 from the Regional Police Dept., deprived from the discoverers of the Rejantsi hoard after an attempt of illegal export. Later in 1980, coins were inventoried in the Numismatic Fund (Inv.nos. H-593-597).
Both staters of Philip III Arrhidaeus were struck in the years between 323 and 317/6 BC (Thompson, ADM I, 60-61). Only the last Alexander stater 4 of this undated Macedonian series seems some earlier.
Coin 3 was struck at Lampsacus of the fifth series of this mint. Another stater from the same dies is known - from ‘Paeonian hoard’ (Sotheby’s 1969, 259), i.e. from the same large deposit of coins. Especially for these series M. Thompson emphasized that the considerable amount of gold money have been needed to reimburse the mercenaries being sent home from Asia Minor (Thompson 1981, 244-46), so new mints were opened around the Chersonessos. Coin 5, struck at Babylon with same dies as pieces from Anadol hoard (Pridik, no. 440) and from Krivodol in Northwestern Bulgaria (Russeva 1996, 35, no. 6).
The condition of preservation of coins also should be noted. They all are almost in mint state, with the small exception of no. 1 and 3 – Alexander stater of c.332/23 BC and a Phillip’s reissue, struck at Colophon in 323/15 BC, which had minor wear. This fact means they had very short circulation life and buried shortly after 316/5 BC.
The deposit from Rejantsi (Breznik area, Western Bulgaria) is one of the largest and well-known coin hoards among all Early Hellenistic in the Mediterranean (Gerassimov 1963, 264; IGCH, 64, no. 411). It was discovered in the autumn of 1961 in the locality ‘Sitni trun’, 2 km east from the village by some shepherd named Mr R. Mladenov (1908-1967). According to different sources and live witnesses originally it was a large clay jar containing of silver coins weighted about 82 kilos (c.6000 coins) /after T. Gerassimov – over 40 kg, after J. Youroukova - over 22.140 kg/. Unfortunately, it was almost entirely separated and dispersed among private persons, collections and auction sales at West, and even a large part – melted for scrap. The few survived parts, available for study, and preserved in Bulgarian museums, are not much than 3450 coins, not published at until present. Only few interesting varieties or new coin types from hoard were briefly discussed (Youroukova 1969, 247-249; Youroukova 1970, 277-281; Youroukova 1980, 63-68). Recently a modest attempt for tracing the original composition of the hoard was made by a Bulgarian collector (Topalov 1998, 303-305).
There is a serious suspicion the large deposits of coins sold in London and New York auctions in 1969 and best known as ‘Paeonian Hoard’ (IGCH, 63, no 410; Le Rider 1977, 298-304) were in fact two fragments of the same hoard from Rejantsi in West Bulgaria (Le Rider 1977, 304-309, no. 15). In this paper an attempt to defend and prove this opinion is made. In his monograph on Philip II coinage Professor G. Le Rider, when he studied part of the 1446 Philip tetradrachms in Sofia Museum, denotes that the ‘Paeonian hoard’ was most likely found in Bulgaria and not in Macedonia near Skopje (Le Rider 1977, no. 14, 298, n.1, and 309). Their general contents, the stage of preservations of coins, the multiple test-cuts on the Philip II tetradrachms and other features perfectly corresponds. No doubt from my point of view, to the same enormous deposit of silver and gold coins belonged another two small portions of total 14 staters with known provenance ‘from the area of Pernik’ and ‘from Radomir’ (Rousseva 1999, 3-12). All available data are summarized in Table 1.

E. Paunov – I. Prokopov, "Actium and the ‘Legionary’ Coinage of Mark Antony: Historical, Economic and Monetary Consequences in Thrace (The Coin Evidence)"

by Evgeni Paunov

To be published in: KEPMA volume III (=Proceedings of the 1st International conference 'Numismatic History and Economy of Epirus during Antiquity', Ioannina, 3–7 October 2007), Athens 2012 /forthcoming/.

After the battle off the Actium promontory on the South Epirote coast on 2 September 31 BC, the course of history in... more After the battle off the Actium promontory on the South Epirote coast on 2 September 31 BC, the course of history in the Mediterranean was dramatically changed. For the conflict between the armies of Mark Antony and Octavian, there was active involvement of foreign troops. Thracian mercenaries and allies participated in the ground operations on both sides, all without seeing actual fighting. Days before the final battle the future king of Thrace Rhoemetalces I with his own cavalry force, deserted Antony’s side and joined Octavian. Dicomes, chieftain of the Getae (from Northeast Thrace), promised support to Antony but never appeared at Actium. In order to pay his army Mark Antony organized a large scale coinage in silver, the so called “legionary” denarii, minted in the camp at Patrae in the winter of 32/31 BC. Subsequently, large quantities of this coinage appeared all around the Roman world, including the North – in Thrace and Macedonia.
This paper treats aspects of the historical and economic consequences for the northern Balkan kingdoms and tribes after the 30’s BC, which resulted in the rapid transformation of these territories into Roman provinces. A major portion of the “legionary” issue was filtered and transferred via Epirus and Thessaly to the north. These coins continued their circulation among soldiers, mercenaries and merchants in Thrace and other areas long after the defeat of Mark Antony.
The paper also provides a survey of the main types of coins circulated in Thrace in the 2nd – 1st c. BC, and how they changed over that period.
All known coin hoards from Thrace (modern Bulgaria) with closing dates around or shortly after Actium (32/31-29/29 BC), are reviewed and analyzed – 17 deposits in total (table 1). A summary table of coin hoards with “legionary” denarii in Europe (table 2) is also given. Further, a newly discovered coin hoard of 67 Republican denarii from Vratsa area (Northwestern Bulgaria), with couple of silver pieces of jewelry (2 bracelets, torque, 2 finger-rings), is also included for illustration and discussion (table 3, figs 2-4). The hoard closes with issues of Mark Antony and Cleopatra, Armenia devicta type, dated to 32 BC.
Finally, finds of ancient coin dies for late Republican and early Imperial denarii from the Balkans are discussed (figs. 5-7).f