What Have We Learnt?
Edited by Steven Kates
Chapter 2: Traditional Monetary Economics vs Keynesianism, Creditism and Base-ism
2. Traditional monetary economics vs Keynesianism, creditism and base-ism Tim Congdon How is the Great Recession to be explained from an intellectual standpoint? The argument here is that the heart of the problem is the lack of an agreed consensus among economists on answers to the questions, ‘what are the key determinants of the equilibrium values of income and wealth in nominal terms?’ and ‘if income and wealth are not in equilibrium, how do these determinants restore their equilibrium levels?’. In the following I will argue that banking developments – particularly such developments when they affect the quantity of bank deposits – are critical in answering these questions. I should say at the outset that my argument is not universally shared among economists and that, in my opinion, the absence of a consensus has itself been largely to blame for the monetary and banking fiasco suffered since mid-2007. Although I regard my position as rooted in traditional monetary theory, I am well aware that central features of my analysis are – for the moment at least – deeply unfashionable. Moreover, my conclusion is distant from the current mainstream. I reject the notion that privately owned commercial banks have been to blame for the macroeconomic calamity of the last three years. These organizations patently do not control the recognized instruments of macroeconomic policy. On the contrary, the blame for the Great Recession lies with governments, central banks and regulators, particularly those in the English-speaking world. The bottom line is that, by punishing the...
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