[발췌: A.H. Meltzer's] Keynes's Monetary Theory

출처: Allan H. Meltzer, Keynes's Monetary Theory: A Different Interpretation (Cambridge University Press, 2005)
자료: 구글도서

일부 목차:

1. Introduction
2. Keynes in the 1920s: ideas, beliefs, and events
3. Theories, implications, and conjectures in the 1920s

• The fundamental equations (p. 62)
• Savings and investment (p. 66)
• The paradox of thrift and the real balance effect (p. 70)
• The asset market (p. 72)
• A model of the treatise (P. 76)
• The business cycle and disequilibrium dynamics (p. 81)
• Criticisms of the quantity theory (p. 85)
• The open economy (p. 89): Problems with the gold standard (p. 93) |  Monetary policy under gold standard (p. 96)
• Fiscal policy (p. 101) 
• ... 

※ 발췌 / excerpts:

* * *

Chapter 3. Theories, implications, and conjectures in the 1920s (p. 62)

p. 89

[소제목] The open economy

Most of the ^Treatise^ ignores the repercussions on exchange rates, foreign lending, and trade, but sections of the ^Treatise^ have much to say on these topics. Keynes regarded his work on international values as preliminaries (5, p. 293), but his discussions of the gold standard, the effects of the U.S. stock market boom, and his proposals for monetary reform depend on his theory of open economy relations.

  In the ^Tract^, Keynes is skeptical about purchasing power parity as a short-run theory of exchange rates, but he accepted the theory, with some qualification, as a determinant of the long-run equilibrium exchange rate (4, pp. 78-80). The ^Treatise^ has a more developed analysis of the conditions for external equilibrium. Keynes supplements the fundamental equations and modifies the definitions of output and investment to take account of exports and imports and net foreign lending, respectively.

  The foreign balance B is the net balance of a country's trade (net exports), net foreign lending L is the net balance on capital account (5, pp. 118-19). Hence,

L＝B＋G   (3.9)

where G is the net gold flow. Foreign lending and gold flows supplement domestic saving as a source of financing for total investment I . There are now two equilibrium conditions, one internal and one external (ibid., p. 146). To sustain internal equilibrium, 

I ＝I (1)＋L－G  and I (1)＝S (1)   (3.10)

where I (1) and S (1) are home investment and home saving. To sustain external equilibrium, gold flow must be zero, so in equilibrium, 

L＝B   (3.11)

An open economy raises two relevant policy issues. The first arises from the relation between relative interest rates and relative prices at home and abroad. The central bank can alter relative price and encourage equilibrium in the trade account by changing interest rates, ( ... pp. 90-91 unavailable ... )

p. 92

( ... ... ) must be sufficiently lower than foreign prices to sustain the rise in B. During adjustment, the gold flow facilitates the price change by raising foreign prices and lowering domestic prices. If capital is mobile, the rate of interest must be the same in each country and equal to the natural rate (ibid., pp. 299-300).

  The change in factor prices and real incomes at home depends on the gain or loss of efficiency following the diversion of resources to produce goods for export and to sustain higher net exports. Typically, Keynes reasoned, money earnings at home fall relative to earnings abroad; the terms of trade change in favor of the foreign country.[28] Home country benefits, however, from higher interest payments on foreign loans and from lower cost of the imported products produced with the new investment abroad.

[28] Keynes regarded his argument (5, pp. 296-7) as a response to Ohlin's criticism of the analysis of the transfer problem he made in ^The Economic Consequences of the Peace^. He cites evidence accumulated by Taussig to support his conclusion (ibid., pp. 296, 300). His general view appears to be that long-run equilibrium is maintained because an outflow of gold induces the central bank to raise the home country interest rate, thereby changing prices, profits, and investment. Long-run equilibrium is determined by the current account and short-run position by the capital account. In a 1932 article, he writes: "Thus in the long run the influence of the income transactions wears away that of the capital transaction like drops of a waterfall upon a stone. The analogy is a good one. We can be certain that the waterfall will win the end, but it may be a long time" (21, p. 75).

  The adjustment of the terms of trade can be painful. The adjustment depends on elasticity of demand, on the relative efficiency of the increased production sold abroad to raise B (ibid., p. 301), and on the monetary policies of the two countries (ibid., pp. 302-4). Countries can choose to allow monetary gold stocks to change or can avoid such changes. The alternative to allowing gold to flow out, thus raising prices abroad, is to lower costs at home. Allowing gold to flow in, however, requires the foreign country to adjust prices and earnings upward, in Keynes's terminology to experience "income inflation." In either case, the adjustment of prices and costs continues until the natural rate of interest is equal to the market rate in both countries. [29] The cost of the adjustment and the distribution of the cost between the domestic and foreign publics depends on whether prices must rise or fall at home and abroad.

[29] Keynes then discusses the flow of lending to the United States in 1928-9. This flow did not arise, in his judgment at the time, from an increase in the natural rate. The cause was financialㅡan increase in the demand for money in the United States. The result was a rise in lending to the United States that was not accompanied by net imports into the United States. Hence, he said, the rest of the world did not get the stimulus of net exports and lost gold. A different version of his analysis is in his correspondence with Burgess, discussed in Chapter 2.

  Changes in relative interest rates have more lasting and more painful consequences, he concluded, than changes in relative prices that induce short-term changes in the trade balance. Lending to take advantage of increased opportunities abroad required a country to reduce its cost of production. He clearly has the late 1920s in mind:

If there is resistance to this fall [of internal costs of production], gold will flow [out], bank rate will rise and unemployment become chronic. This is particularly likely to happen if the prevalence of tariffs against manufactured goods (and a readiness to raise them when imports of such goods are increasing) renders the foreign demand for old country's exports inelastic, whilst at the same time trade unions in the old country present great obstacles to a reduction of money wages. (ibid.[CW. vol. 21], p. 312)

  Keynes's summary judgment in the ^Treatise^ is that the "troubles and inconveniences of the transition [to increased foreign lending] may be very great" (ibid., p. 311). Although much of his discussion is general, there is no reason to doubt that the circumstances in Britain following the return to gold motivate his discussion. Within a few months, his memorandum to the Economic Advisory Council (13, pp. 178-200) more openly discusses some of the advantages of forbidding foreign lending. The principal economic advantages he cites are that[:]

• equilibrium real wages are higher (ibid., p. 185) [*]
• and the domestic capital stock is larger, at least for a time (ibid., pp. 196, 199). [**]

[*]  "... If, however, foreign lending were to be forbidden from the outset, then we might find that equilibrium real wages were even higher than they were before the story began." ( ibid., p. 185)
[**] on p. 196: which comment ??
[**] " ... You will also be richer in the sense of owning more capital goods and foreign investments five years hence. ..." (ibid., p. 199)

Keynes's argument for some type of exchange control and his advocacy of controls repeats a theme found in his earlier (19, p. 573) and later writings.

  [소절] Problems with the gold standard

The analytic basis of Keynes's criticism of the return to gold at the prewar parity is found in the ^Treatise^, particularly in his discussion of foreign lending. His criticisms and his efforts to overcome the perceived weaknesses of the gold standard are the foundation for his proposals that later became the Bretton Woods agreement.

  Early in the ^Treatise^ Keynes explains that the principal difference between proponents and opponents of the return to the gold standard earlier in the decade was not a choice of a managed rather than an automatic standard or, in modern parlance, of limited discretion versus fixed rules. There was "no likelihood or possibility" of an unmanaged gold standard (5, p. 18).

  There were two major problems. First, the proponents of gold wanted to return to the prewar gold parity without waiting for money incomes to fall to the level consistent with the prewar parity. The opponents believed it desirable either to devalue relative to gold or to wait until money values declined. Part of the difference between the two groups arose because the proponents were misled by reliance on the the wholesale price index instead of an index of consumption goods (ibid., pp. 66-79). Second, the opponents of gold favored a tabular standard as an improvement over the gold standard (ibid., pp. 18-19). Later in the ^Treatise^, Keynes proposed such a standard based on a basket of internationally traded commodities (6, pp. 350-4).

  The specific flaws in the return to gold were the result of the failure to recognize the main point of hi fundamental equations. The two conditions necessary for the price level to remain at the equilibrium required by the return to the prewar gold parity are (1) that I＝S and (2) that money costs of production, W, be reduced to a level consistent with the full employment price level. Money incomes had to fall by 10% (6, p. 162).

  The Bank of England was able to bring the price level down in the traditional way. The mistake was to believe that the prewar gold parity required only that purchasing power parity be restored. In a passage very much in the spirit of his earlier criticisms, Keynes summarizes the proponents' error: "Equilibrium required that the flow of money incomes and the rate of money earnings per unit of output should be appropriately reduced. But in the first instance the fall of prices reduced, not costs and rates of earnings, but profits." (ibid., p. 163).

  The efforts to reduce wage and costs of production led to a general strike. The end of the strike was not followed by a general decline in money wages. Wages fell in some industries but not in the aggregate, so adjustment to the new equilibrium was delayed until it could be brought about by an increase in efficiency. [30]

[30] Keynes cites Bowley's index of weekly wage rates to support his claim (6, pp. 164-5). He estimates the cost of the unemployment resulting from the return to gold as ￡100 million per annum for several years (ibid., p. 165). He suggests that Britain could have been "perhaps, just about as rich as the United States" if they had devalued gold [parity] and stabilized at the 1920 prices and cost level (ibid., pp. 161-2).

  Foreign investment made the adjustment problem worse. The usual effect of a higher home cost of production is to reduce the trade balance B, but to this was added the attractiveness of foreign investment L. Keynes's analysis implied that,[:]

• (a) with slow adjustment of prices, B did not rise to finance L, 
• (b) so it became necessary to raise the rate of interest to reduce L and prevent a gold outflow. 
• (c) This had the effect of reducing home investment as well as foreign investment (ibid., p. 166). (d) Since profits fell, home investment that would increase efficiency became less attractive.
• The use of tariffs by the United States and, later, the world depression added to the burden of adjustment by making it more difficult to increase British exports (ibid.). 

So investment and progress were sacrificed.

p. 95

   Keynes regarded this sequence as an application of his monetary theory, and he used it to support an important policy conclusion: opposition to an international system based on laissez-faire.

• Rejection of laissez-faire in international trade and lending was based on his judgment that (1) the British standard of living was higher than in most of the world, (2) population growth was slow, and (3) saving remained at 10% of income. 
• (a) In a closed system, the natural rate of interest would fall in these circumstances. 
• (b) Under gold standard, the saving flowed abroad to finance foreign investment. (c) Eventually, interest payment on previous investments would rise to pay for net lending. Until that happened, exports exceeded imports :

Having regard to the tariff walls against us, to the gradual disappearance ... of the special advantages in manufacture which used to be ours, and to the high real wages (including in this the value of social services) to which our workers are accustomed as compared with our European competitor, one cannot but feel a doubt whether the attainment of equilibrium on the line of an expanding trade surplus will in fact be practicable. (ibid., p. 169)

  The best alternative, for a country faced with these problems is to achieve equilibrium in the usual wayㅡby exporting to finance foreign lending. If that is impractical because of tariffs or other barriers, there are two alternatives. One is to adjust the rate of interet on domestic lending by subsidizing domestic investment. The other is to change the relative prices of foreign and domestic goods. Keynes clearly preferred the use of investment subsidies, including government investment at below market rates of interest (ibid., pp. 169, 337-8). The ^Treatise^ does not, however, dismiss tariffs or other devices to raise the cost of imported goods under the circumstances of the time (ibid., p. 169).

  He considered other alternatives. One was to abandon the gold standard or make it less rigid. Keynes's ^Treatise^ repeats his proposal in the ^Tract^ (4, p. 150) to allow the central bank to vary the gold points so as to adjust prices of exports and imports (6, pp. 290-2). [31] He believed this power would enable the central bank to reduce the domestic effects of correctly anticipated, temporary changes in foreign interest rates. Although his analysis distinguishes permanent and transitory changes in interest rates and prices, his proposal makes no use of this analysis and presumes that the central bank can use the power to smooth fluctuations.

p. 96

  Keynes also considers fluctuating exchange rates. Fluctuating rates reduce foreing lending by introducing an element of uncertainty (5, pp. 322-5). Fluctuating rates reduce the response of output to short-term changes in foreign interest rates and eliminates the requirement to change interest rates when interest rates change abroad.

  But changes in the gold points and fluctuating exchange rates overcome the principal disadavantage of the gold exchange standardㅡthe requirement that domestic stability be sacrificed to maintain stability of the exchange rate. The main problem of the gold standard is that "there is no possibility of rapidly altering the balance of imports and exorts to correspond" to frequent changes in foreign lending (6, p. 300). In a system with rigid wages, variation of interest rates to achieve external stability places the burden on domestic investment, profits, and employment. There is, therefore, excessive and avoidable variability in employment. The emphasis is no longer on the failure of the gold standard as a system for achieving price stability; the problem is the variability of output and employment induced by price instability.

 [소절] ^Monetary policy under the gold standard^

The classical gold standard had been abandoned in 1914, and Keynes did not expect it to return. The managed gold standard gave scope to central bank management. This scope was greater for the United States, with its relatively large stock of gold, but there were opportunities for monetary management in Britain also.

  In the ^Tract^, Keynes described the policy choice as a choice between stable prices or stable exchange rates (4, p. 117), and he expressed a preference for stable prices (ibid., p. 126). The job of the central bank is to vary monetary policy so as to offset changes in the public's average cash balance (ibid., p. 68). In the process of writing the ^Treatise^, he both modified and amplified this position, distinguishing between a policy that stabilizes prices without regard to the effect on investment in working capital and a policy that satisfies the fluctuating demand for credit without producing instability in the price level (13, p. 90). [32] He, of course, favored the latter approach, and the ^Treatise^ reflects ( ... p. 97~ unavailable .... )