Chapter 15: Keynes after 75 Years: Rethinking Money as a Public Monopoly
L. Randall Wray INTRODUCTION In this chapter I first provide an overview of alternative approaches to money, then focus in more detail on two main categories: the orthodox approach to money that views money as an efficiency-enhancing innovation of markets and the Chartalist approach that sees money as a creature of the state. I then move on to a brief examination of the implications of viewing money as a public monopoly. I then link that view back to Keynes, arguing that extending Keynes along these lines would bring his theory up to date. ALTERNATIVE APPROACHES TO MONEY No matter how hard macroeconomics tries to keep money in the background, it refuses to play its assigned role as a neutral veil. Indeed, many of the most important debates – including the divisions between schools of thought – were driven by differences of opinion over money’s role in the economy. To be sure, postwar IS-LM Keynesians gave monetary policy a backseat, however, insatiable desire for money results in recessionary liquidity traps that can be resolved only through appropriate fiscal expansion. In Milton Friedman’s hands, money (and bad monetary policy) was said to be the cause of all inflations and depressions. Robert Lucas claimed monetary surprises led optimizing agents to take extended vacations, standing on line for hand-outs of soup and bread as equilibrium GDP falls until nominal prices adjust. Turning to the latest fads and fancies, in the New Monetary Consensus, only careful monetary management can align market interest rates with natural rates to...
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