2013년 4월 7일 일요일

[발췌: Robert Mundell's] The Origins and Evolution of Monetarism (1983)

출처: Monetarism: Economic Crisis and the Third Word (Routledge, 1983)

편저: Karen Jansen
자료: 구글도서


차례:
  1. Monetarism, Economic Crisis and the Third World: An Introduction (Karel Jansen)
  2. The Origins and Evolution of Monetarism (Robert Mundell)
  3. What is Wrong with Monetarism (Francis Cripps)
  4. Monetarism: Is the Debate Closed? (Arnold Heertje)
  5. World Crisis and the Monetarist Answer (Ernest Mandel)
  6. Monetarism and the State Socialist World (Michael Ellman)
  7. Structuralism vs Monetarism in Latin America: A Reappraisal of a Great Debate, with Lessons for Europe in the 1980s (Dudley Seers)
  8. The IMF Prescription for Structural Adjustment in Tanzania (Brian Van Arkadie)
  9. International KeynesianismㅡA Solution to the World Crisis? 
  10. Monetarist Policies on a World Scale 
* * *

of which: Chapter 2. The Origins and Evolution of Monetarism

by Robert Mundell.

※ 발췌(excerpts): 

p. 43 ~

The History of Money

I am no longer as certain as perhaps I once was about what monetarism is, was, or will be. To trace the origins of monetarism is rather like tracing a rive to its sources, through its many tributaries and branches. There are various ways of approaching the origins of monetarism: the first is to see what has happened in the field of money and of monetary policies over the past years, decades or even centuries. Another is to trace the intellectual history of the development of monetary ideas over that period.

Monetarism can be conceived of as a body of ideas and practices which have inspired monetary policies since the very creation of money in ancient times; in other words, a body of thought associate with the implementation of monetary policies. The study of monetarism should start with the peoples of India, China and the Middle East who, five thousand years ago, enjoyed a monetary system. The Sumerians, the Chaldeans, the Chinese, the Indians and the Persians had monetary ideas. Coinage as we know it today is more recent, initiated by the ancient kings of Lydia, the forefathers of Coresus, who introduced the use of pure gold. Early coinages such as dinar originated in India but spread quickly to Persia and the Middle East, and achieved prominence in the Moslem world through a gold coin minted at the end of the seventh century.

( ... ... )

(...) this was nothing more than acquiescence to existing reality. The basic idea was to de-emphasise the importance and role of gold in the system, and to increase the role of the SDRsㅡthe special Drawing Rightsㅡwhich had been agreed upon in 1967 and introduced in 1970 and, in fact, probably played a role in the break-up of the Bretton Woods system.

Gold in fact is now more important than ever, and the instability of its price has exacerbated the economic crisis. To give some idea of the great changes that have occurred since 1971, in 1970 the value of gold reserves held by central banks in terms of dollars and valued at the official price of $35 per ounce, was about $37 billion. In January 1980, valued at free market prices, it had moved up to $600 billion. In other words, the value of gold reserves in the world went from $37 billion to $600 billion at the January 1980 price which was, of course, very high [IMF, various months]. This is close to a 20-fold increase in the value of gold reserves. The nature of that change alone is awesome in comparison with the way people were talking in the 1960s about international monetary reform when an increase in international reserves of three or four billion dollars was thought to be a large amount. The first enactment of SDR was for $3.5 billion in 1970, three billion in 1971 and again in 1972, but since the floating of the gold price, increases to the tune of hundreds of billions of dollars have occurred. And not only the upward movement is significant, but also the fluctuations. ( ... ) At least part of the economic crisis with which we are faced in Europe today is due to the fact that external reserves have been sliced in half, leading everywhere to retrenchment policies.

Not only the big increases in the value of gold stocks but also the increase in foreign exchange reserves has contributed to the growth of international liquidity. In 1970 foreign exchange reserves amounted to $45 billion, but in 1980 they were close to $300 billion, again a fantastic increase. But the whopper is the shift in Euro-dollar accounts which in 1950 totalled $10 billion, in 1960 $25 billion, in 1970 $163 billion; in 1981 they amounted to over two trillion dollars! [Ididem]. This mushrooms of the two important ingredients of international reserves, i.e. foreign exchange holdings by central banks, and gold holdings at market places, has been due to the breakdown in the discipline of gold as far as the United States is concerned, and the breakdown in the balance of payments discipline under fixed exchange rates in the case of the other countries.

This enormous expansion and the fluctuations of the gold price are the principal elements in creating the cycles and crises with which we are now familiar, and which are induced by the instability of the gold price and the instability of currencies since the introduction of the floating exchange rate system. In short, monetarism under the regime of Milton Friedman and his disciples has come to mean instability and excessive inflation, a breakdown of discipline both monetary and budgetary, because budget deficits are simple financed through inflation. It has led to disintegration not only within the Atlantic area but within European countries, because the instability and differential inflations of those countries have made it extremely difficult for Europe to achieve any of its monetary integration goals. Since 1973 the Europeans have become disillusioned with floating exchange rates and have sought refuge in a joint solution of monetary discipline. This began with the movement for a European currency. In 1969/1970 the initial phase of that movement broke down. The post-1973 experience with floating exchange rates, however, caused disenchantment with the idea that each individual countries should establish its own monetary control and defend it against inflation through its own devices, and led to repeated attempts to re-create joint monetary control within the framework of a fixed exchange rate system inside Europe. So far, however, these attempts have had little success.

As a result of these problems, renewed interest has been shown in the intellectual and theoretical aspects of monetarism. My own contribution has been largely in developing the monetary approach to the balance of payments, the mix of fiscal and monetary policies, in the debate on the role of dominant currencies, and of optimal currency area [Mundell 1968; 1971]. In my view, monetarists are people who want to use the currency as a means with which to enforce economic discipline and the economic harmony of policies. According to the monetary approach to the balance of payments, countries would fix their own currencies to a central reserve devices and, through their own purchases and sales of reserves, would automatically determine their monetary policies. A fixed exchange rate regime is a monetary policy, and a country can only have one monetary policy. It either fixes its prices by setting a fixed exchange rate, or it fixes quantities, à la Friedman. The basic question is which is easier and which is more explicit. I am against Friedman's quantity rule because money changes its spots all the time. Definitions have to be changed from M1 to M2 and M3, M4 and M5 (and now in the USA M1a and M1b and M1c), adjusted for seansonal factors, and adjusted or not adjusted for savings deposits. Even more adjustments will need to be made whenever money changes its uses and financial innovations occur. Innovation cannot be stopped, and the monetarist rule therefore becomes a joke. Moreover, definitions take no account of Euro-dollar deposits which could be used for purchases of American goods.

It does not really matter what happens to the money supply. Not because money is not important, but because there are so many close substitutes for any definition of money, and new ones are constantly emerging.


Supply-Side Economics

How can we find a way out of this crisis of unemployment and inflation? Three schools of thought are of significance in the United States: Keynesians, monetarists and supply-siders. In turn, these can be divided into many branches, because every economist has his own variation of what his particular school of thought. reflects. But they can be grouped into the three dominant schools; first, the Keynesian school of fiscalists; and second, the Friedman school of monetarists. Some say that it is really Keynesianism divided into two halves. The Keynesian system was based on the intersection of an LM curve and an IS curve: the fiscalists tool the IS curve to Harvard, and the Monetarists took the LM curve to Chicago. The third school is that of supply-side economics. This is the newest and least familiar of the schools, and it is therefore rather difficult to know exactly what it embraces. No less a person than the Vice-President of the United States has called it[supply-side economics] 'voodoo economics', although that was before he became a candidate for the Vice-Presidency. When Bush became Vice-President he had to conceal his opposition because many of the American President's economic advisers are supply-side economists.[1] I am also sympathetic to such views and have perhaps played a role in disseminating them. Economists that suffer from inflation and unemployment should find a solution to their economic problems not, as the monetarists insist, by creating a depression, but by adopting a mix of monetary and fiscal policies which will alleviate the need for a depression. According to the supply-siders, unemployment is not a factor that will help to stop inflation. In a recession the supply of goods and services is reduced, and a reduction in supply is ^inflationary^, not deflationary. The object of any policy designed to stop inflation should therefore be directed towards the enhancement of supply. 

The problem is how do you change supply differentially from demand? This can be done through the differential use of policies, in particular fiscal policies and monetary policies. Both the Keynesian fiscal and Friedman monetarist policies are demand-side policies. Until the time of Keynes, classical economics to some extent lacked any explicit aggregate demand schedule, and most writers on Keynes consider his most original and most important idea to have been the introduction of the aggregate demand schedule. It is certainly a major tool of analysis. Both Keynesian and Friedmanites concentrate on aggregate demand, and in both cases neglect the side of supply. The only way in which the supply side is affected in Keynesian analysis is through wage control or incomes policy. The Keynesian fix their attention on wage control or incomes policy rather than, like monetarists, on floating exchange rates, largely because their work started at a time when floating exchange rates were not respectable and the world was by and large on the system of fixed exchange rates. Incomes policies thus became the way by which they could exert some kind of influence on supply. The Friedman monetarists, on the other hand, focuses on the role of money supply, without any belief in wage controlㅡthey expect wages to be controlled over a longer period by unemployment which will cause wage demands to be reduced or at any rate moderated.

Supply-siders, on the other hand, reject the Friedman approach, holding the view that it makes the economy pay for halting inflation with a recession which will exacerbate the problem. In the USA, the big recession of 1969/70 was engineered by the Nixon Administration in order to reduce effective demand, and it was done through a very tight money policy. This was deliberate and was introduced by the Chicago-based task force immediately after Nixon's elelction. This policy was repeated after September 1974 by the brilliant alliance between Keynesians and Friedman monetarists, with their recommendation for an increase in taxes and for tight money, which created and exacerbated the recession of that year.

It was at that time that the supply-side school began to get established with its opposition to the tax increase that the then Secretary to the Treasury argued for. I was among those who at the time pressed for tight money to stop inflation, combined with a very large tax cut, ( ... ) but the only result was the retention of the tax increase which had been planned by the Ford Administration in 1974. This was reversed in November 1974 and ultimately there was no tax change at all. It was until April 1975 that a tax cut was introduced of $15 billion. This was not a supply-side-type tax cut, however, but a purely Keynesian-type cut, i.e. a rebate to consumers, not given in order to stress the incentive to produce, but purely a demand-based tax cut.

( ... ... )

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