Edited by Sheila Dow, Jesper Jespersen and Geoff Tily
Chapter 8: A personal interpretation of Victoria Chick’s monetary thought: intellectual rigour, scientific innovation and common sense
This chapter offers a personal interpretation of Victoria Chick’s monetary thought which is heavily drawn on two basic principles that have always been present in her work and should be known by every economist who really wants to understand the complex influence that theory, method and institutional context exert on the way monetary policy works. The two basic principles I want to address in my review of Victoria Chick’s monetary thought are these: 1. the notion that monetary change is only ‘one half of the story’ in our understanding of the way the economic system really works; and that 2. the development, structure and evolution of the banking system matters for the way monetary policy works and banking system promotes (or does not) economic development. Our analysis will suggest that the two aforementioned principles are part of the innovative academic legacy of Victoria Chick, which has resulted from her constant dedication to the critical analysis of theory and her strong determination to unravel the assumptions and logical foundations of theories. The analysis provided in this chapter will suggest that the explicit consideration of these two principles, namely, the way money enters the income-generating process and the historical and institutional particularities of theory, become crucial not only for a better knowledge of the way a monetary economy works, but also for understanding the evolving character of the so-called ‘monetary transmission mechanism’. In my opinion, the explicit consideration of these two principles would particularly help many conventional economists to overcome their current discomfort and desperation, for conventional monetary theory helps very little to understand the current debate over the broken transmission mechanism of monetary policy or the ineffectiveness of its conventional tools. Victoria Chick’s monetary thought explains not only the potential interrelationship of monetary and fiscal policy, for this depends on the way the monetary change takes place, but also the ‘abnormal’ time of monetary policy (Roubini 2016) that orthodox economists are unable to explain, for their conceptual framework does not conceive what Victoria Chick takes for granted: that the effect of any monetary change depends on how people behave, who issues the money and in exchange for what (Chick 1978b, pp. 55–8).
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