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Central Banking, Monetary Theory and Practice

Essays in Honour of Charles Goodhart, Volume One

Edited by Paul Mizen

Celebrating the contribution that Charles Goodhart has made to monetary economics and policy, this unique compendium of original papers draws together a highly respected group of international academics, central bankers and financial market regulators covering a broad range of issues in modern monetary economics. Topics discussed include: central bank independence; credibility and transparency; the inflation forecast and the loss function; monetary policy experiences in the US and the UK; the implications of Goodhart’s Law; the benefits of single versus multiple currencies; and money, near monies and credit.
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Chapter 10: Money and the monetization of credit

Martin Shubik


Martin Shubik* 1. INTRODUCTION In Utopia all greed for money was entirely removed with the use of money. What a mass of troubles was then cut away! . . . Who does not know that fear, anxiety, worries, toils and sleepless nights will also perish at the same time as money? What is more, poverty, which alone money seemed to make poor, forthwith would itself dwindle and disappear if money were entirely done away with everywhere. (Thomas Moore, Utopia, Book II, p. 149) What are the basic distinctions among a money, a near money and a money substitute? When is an individual’s IOU note as good as cash? Under what circumstances can an economy get along without a governmental issue of money? What does the economy described in Saint Thomas Moore’s Utopia have in common with the Arrow–Debreu treatment of the competitive economy? Where does information, knowledge, ‘know who’ and expertise play a role in monetary economic theory? How accurate is our knowledge of individual wealth? When and how does it serve to back credit? What is credit and what role does it play in the functioning of markets? The goal in this chapter is to consider and discuss these questions and to consider how a measure of the degree of monetization of the potential credit in any economy might be constructed. An attempt at mathematization is left for separate work, however, a simple example is presented in the Appendix and some crude statistics are presented in support of this approach. Goodhart...

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