Money-supply

Featuring a new introduction by its expert authors Michael D. Bordo (Professor of Economics and Director of the Center for Monetary and Financial History, Rutgers University) and Lars Jonung (Research Adviser at ECFIN, European Commission, Brussels), Demand For Money: An Analysis Of The Long-Run Behavior Of The Velocity Of Circulation is an in-depth scrutiny of the "income velocity" of money -- an inverse measure of the demand for money balances that is the ratio of the money value of income to the average money stock that the public (excluding banks) holds in a given period. Examining data from several countries spanning the late nineteenth century to the late twentieth century, Demand For Money draws patterns and searches for causes in economic fluctuations as well as the key influences that interrelate with monetary policy. An expert-level dissertation written for advanced students and practitioners of economics, Demand For Money is a critically important contribution to Economic Theory, International Economics, and Economic Policy Studies supplemental reading lists and academic library collections.

I knew Bernard Lietaer as one of the world's leading authorities on complementary currencies and a chief architect of the Euro. As a former senior officer of the Belgian Central Bank and active in the domain of money systems for 25 years, his thoughts about money markets were always quite impressive. This book does an excellent job of providing a summary introduction into how money has worked and evolved in our societies.

However, given that you are reading this review and are most likely interested in monetary economics in some way, I'd also strongly recommend Lietaer's seminal work "The future of money", which he wrote while he was a fellow at UC, Berkeley. For some inadequately explored reason, only Amazon.co.uk seems to have the book on their database (ISBN: 0-7126-8399-2).

Here are some interesting glimpses from the future of money to give you a feel for the material you'll read... your money's value is determined by a global casino of unprecedented proportions...$2 trillion are traded per day in foreign exchange markets, 100 times more than the trading volume of all the stockmarkets of the world combined. Only 2% of these foreign exchange transactions relate to the "real" economy reflecting movements of real goods and services in the world, and 98% are purely speculative. This global casino is triggering the foreign exchange crises which shook Mexico in 1994-5, Asia in 1997 and Russia in 1998. These emergencies are the dislocation symptoms of the old Industrial Age money system. Unless some precautions are taken soon, there is at least a 50-50 chance that the next five to ten years will see a global money meltdown, the only plausible way for a global depression.

The Information Age has already spawned new kinds of currencies...the ilk of PayPal, frequent flyer miles evolving towards a "corporate scrip" (a private currency issued by a corporation) for the traveling elite; a giant corporation you never heard of is issuing its own "Netmarket Cash" for Internet commerce; even Alan Greenspan, Chairman of the Federal Reserve, foresees "new private currency markets in the 21st century."

Exorbitant compensations are paid to the very few at the top: it started with movie stars and sports heroes, and has now spread to top lawyers, traders, doctors, and business leaders. In the 1960s CEO salaries were only thirty times greater than those of the average worker, compared with two hundred times today (of course Enron and Worldcom debacles may change this somewhat, but salaries won't drop overnight). About 1900 local communities in the world, including over a hundred in the US, are now issuing their own currency, independently from the national money system. Some communities, like in Ithaca, New York, issue paper currency; others in Canada, Australia, the UK or France issue complementary electronic money.

The value of barter transactions exchanges which do not use any money as medium of exchange - totaled almost $6.5 billion in 1994 in the US and Canada, and is increasing three times faster than normal exchanges. The magazine "Barter News" covers the industry's development and now has 30,000 subscribers. It estimates the total barter worldwide at $650 billion in 1997, and growing at an annual rate of 15%.

All of the above are a part of a global and irreversible process of change in our money systems and our societies. We are now in a transition period and Lietaer lucidly documents and analyzes the crevices in our official monetary systems (e.g., the 1994 Mexico crash, the Asian downturn of 1997, Brazil's woes in 1999 etc), societal problems related with ageing of our populations or with the ramifications of an information economy, and even broader environmental issues such as UN's declaration in 1998 of the world's worst year EVER for natural disasters -- and how we can resolve the ideological conflict between short-term financial gains and long term sustainibility.

If a work of non-fiction ever came close to being a financial thriller, Lietaer has written it. Required reading for anyone involved in the business of money.

If you are one of those benighted souls, as I was, who thinks of money as just a convenience which saves us from having to haul bushels of wheat and live pigs along with us when we go shopping, read this book. In less than 80 pages, Richard Douthhwaite delves into the history and functioning of monetary systems, amply demonstrating that money is much more than just a convenient means of exchange. Shockingly, he persuasively shows that what most of us think of as money is in reality little more than smoke and mirrors "coined" by commercial banks in their quest for profits and that a monetary system based on such interest-bearing currency not only promotes but is dependent on continuous economic growth. This is the crux of the issue for Douthwaite, an environmentalist/economist who has debunked the supposedly positive benefits of growth in his earlier work, "The Growth Illusion". Douthwaite proposes a non-growth dependent, four-tiered monetary system, in part based on "energy-backed currency units", which would encourage efficient usage, if not actual replacement, of carbon-based fuels. Many criticisms might be levelled at Douthwaite. I have a few. For instance, it seems ironic, to say the least, to base a monetary system that is meant to foster "sustainability" on a non-renewable, and therefore dwindling, resource. Also, his suggestion that fuel emission rights be apportioned amongst the nations of the world on a per capita basis represents such a massive transfer of wealth to heavily populated, poor countries, who would no doubt immediately sell their freely obtained rights to the energy-addicted rich countries, smacks of blue sky daydreaming (just looks at how far another form of wealth transference - debt relief for countries too poor to repay their debts in any case - has gotten!). As an advocate of zero growth, both demographic and economic, I was disappointed that Douthwaite frames his proposals only within the context of a global free market amongst competing nation-states. It would be interesting to see what sort of monetary system he would propose on the presumption of a planned global economy, based on mutual survival, in which zero growth is considered not only desirable but mandatory. This, too, is blue sky daydreaming, I admit, but what truly effective remedies in this increasingly precarious world of ours aren't? But whatever its shortcomings, "The Ecology of Money" presents an illuminating look into our current monetary system and some provocative ideas for reforming it. It's a must read for anyone concerned about where the world, and its confused, nearsighted human species, are headed.

This book was intended to argue against Friedman's monetary description of the Great Depression. However, it is hard to say that Temin responded to Friedman's main contention properly. For, while Friedman maintained that the Depression could have been alleviated had there been some appropriate actions of the Fed (namely, policies related to monetary expansion), Temin's response was composed of two parts which kill each other's clarity; namely, (A) there was no monetary constraint before September 1931: however, (B) we cannot say whether or not macroeconomic policies which were not used then could have been effective if they were actually used. At the same time, Temin's logic which made him say (A) above is based upon a coarse (and probably wrong) interpretation of Friedman's another article, ''Money and Business Cycles''. Nonetheless, I have to be fair to add that this book is one of good materials to examine Friedman's position from various points of views.

Professor Handa's graduate course, the notes of which he compiled into this text, is dry, dated, off-topic, and in most cases downright irrelevant. The text itself is much, much worse. What it lacks in style, it makes up for in tediousness. On the bright side for those of the classical school of thought, its obvious bias combines seamlessly with a reliance on dubious logical manipulations to discredit Keynesian theory far better than even the most eloquent neoclassical author could. Also, for an economics text it is very reasonably priced.

First off, the focus of this book is NOT monetary economics. This is a text on Keynesian macroeconomics. Not neo-Keynesian macroeconomics, either, but good old-fashioned Keynesianism from the 60's and 70's (the author got his PhD in the mid-60's, and the vast majority of the sources cited in the book are pre-1980). It is compendious, but dated (rather like professor Handa, himself). Because the text is 750 pages long, there is a fair amount of monetary material, but if a professor tried to use this book as a basis for a class, 1) it would take two or three semesters to teach, and 2) after the first semester there would be very few students left in the class. Curiously (or not), this is exactly how things work in McGill University's graduate-level courses in monetary economics, where the book was born.

Surprisingly, Professor Handa wrote this 750-page monstrosity of a text without managing to make it comprehensive. Take, for example, gold. One would think that a multi-semester course on money would cover the gold standard, its pros and cons, how it developed, how it was moved away from in modern economies, and why it was able to function with such success over thousands of years and hundreds of vastly differing cultures and governments. Well, in this case you'd be wrong. Look in the index of Handa's Monetary Economics and you will find gold referenced ONCE. Flip to that page and you will see that in Handa's view the sole importance of gold with respect to money and monetary theory was that the gold standard system used under Bretton Woods necessitated the formation of the IMF.

Okay, so there is no gold, but what is there? In short, Keynes-and lots of him. In fact, the old guy even pops up where you would least expect him. Take, for example, this line from the chapter on "Expectations in Macroeconomics and Monetary Policy":

"Many economists have, in fact, speculated that the rational expectations hypothesis been available in Keynes' days, he would have incorporated it into his work."

This may in fact be true (the book has no footnote naming the economists who allegedly speculated such things). It may also be true that Adam Smith would have incorporated REH into his work, but I hardly see the point making such a statement in a textbook.

What else do you get? How about a smoke-and-mirrors "disproof" of Walras' Law? Just how do you "disprove" Walras' Law, you might ask? And why would you want to? And what would that accomplish, anyway? Trust me, you have to read it to believe it.

So, is there anything worthwhile in this book? Surprisingly, yes. The text is actually designed a lot like a general historical account of macroeconomic theory, complete with short and concise summaries of some rather important papers and theories that many students would probably rather read in abbreviated summary form. What is the Baumol-Tobin transactions demand for money and how does it work? What is the Lucas Supply Rule and how does it compare to the Friedman Supply Rule? What authors and papers deal with sticky prices, efficiency wages, or labor hoarding? What is the proof behind the idea of Ricardian equivalence? Check the index, its all here.

In summary, this is text is poorly organized, strongly biased, incredibly boring, and mostly only tangentially relevant to monetary economics. It may possibly be useful to novice graduate students looking for a summary of many broad macroeconomic ideas (particularly old ones) and/or papers who don't want to plow through the equally tedious primary sources. In good conscience, however, I can only recommend it as a highly effective sleep aid, and not a tool of economic learning.

This book is comprehensive in covering all of the conventional, albeit dated, topics in monetary economics. However, it lacks the clarity and consistency of modern textbooks. By the end of the book you will have trouble differentiating one theory from another, as many key arguments are vague or self-contradictory. In addition, very little will be presented to spark your enthusiasm for the material. If you are a professor looking for a course text, this book may be a good guide for forming a curriculum, but please do not subject your students to its dull, meandering style of presentation. Advanced students deserve a book that is more cutting edge.

I am currently using the book for my Master Degree level class in money and banking. The book is EXCELLENT. It is up-to-date with current issues, comprehensive and complete. My students love it. The presentation at the beginning of each chapter is outstanding. One of very few books that presents money at both the micro and macro levels. The discussions of money in Walrasian general equilibrium models and overlapping generation models are exceptional. The review and discussion questions at the end of each chapter are very helpful to students.