Index

aggregate supply function: Friedman on 119–20; Keynes on 118–19 aggregation 107, 168n5 anti-cyclical policy 31, 100, 133, 138, 142, 145–6 anti-trust law 51–2; see also competition ‘as if’ 22, 39–41, 52, 111, 136, 139, 159n13 Austrian 116, 171n3; interpretation of the

Great Depression 54–5, 63–4, 100; see also liquidationists automatic stabilisers 7, 51, 65–6, 95, 97–8, 125, 146

banks (second-tier or commercial) 42, 43, 54, 56–8, 61, 64, 66, 87, 118, 123, 150, 161n24, 163n36, 163n38 banking panics 56, 58, 64 Becker, G.S. 17, 41 Bernanke, B.S. 54, 58, 90, 164n44 Bibow, J. 81, 143, 163n37 ‘big company’ 3, 5, 32, 34, 42–3, 48 Blinder, A. 164n44, 171n2 bottlenecks 27, 73, 94 Brechling, F. 30 Brunner, K. and Meltzer, A.H. 130 Buchanan, J.M. 52 buffer stocks: of commodities 94, 95, 136, 146; of money 110, 114–15

Calvo, G. 169n12 Capital Budget 16, 33, 45, 82, 93–4, 95–6, 168n29 capitalism 34, 35, 37, 40–1, 45–6, 49, 68–9, 150, 159n11; finance capitalism 164n47; ‘wisely managed’ 41 capture 44, 52, 66, 85; see also rent Carabelli, A. 21, 124, 169n8, 169n13; and

Cedrini, M. 135, 136, 156n18, 169n8;

and De Vecchi, N.140, 141, 144, 153, 158n7, 166n14 causality: between monetary real and monetary spheres 111, 116; Friedman on 56, 162n35 central bank 42, 43, 46, 51, 58, 60, 64, 66, 85, 87, 106, 111, 123, 145, 159n17, 163n37, 171n5; see also monetary authority Clarida, R. et al. 83, 143, 169n7, 169n12, 171n5 Coase, R.H. 160n19 collective: body 3, 7, 33, 37, 42–4, 48–9, 73, 85, 140–1, 148, 151, 153, 166n14; rationality 3, 7, 41, 46–7, 52, 73, 82, 144, 148 competition: imperfect 36, 39, 118, 145, 158n3; perfect 39, 53, 119, 145; promotion of 50–1, 161n25, 169n12 confidence 39, 58, 60–1, 64, 92–3, 108, 110, 113, 134, 140, 158n6; in the economic climate 5, 55, 67, 80, 84, 118, 133, 135, 142; in institutions 3, 5, 7, 34, 50, 57, 67, 81, 94, 100, 149, 153 consumption function: Keynesian 6, 17–8;

Keynes on the 18, 94, 95; permanent income hypothesis of 17, 41, 95, 111 conventions 3, 37, 81, 83, 109–10, 124, 134–6, 138, 140–1, 148, 150, 153, 169n8, 169n13 coordination 8, 39, 45, 150–1, 159–60n19; coordination failures 34, 104, 116–17, 10–12, 136, 161–2n30, 163n37 corporations 42–3, 44, 45, 49 counter-cyclical policy 30–1, 32, 66, 91, 95, 97–8, 100–1, 145–6 crisis 62–4, 67, 70, 1929 crisis 4, 54, 62; economic policy for times of crisis 67, 92, 139, 143, 149–51

188 Index

crowd-psychology 37 crowding-out effect 7, 99, 123, 125–6

dichotomy, classical 73, 117 De Vroey, M. 20, 165n6 deficit budgeting (deficit spending) 4, 16, 32, 91, 95–6, 97, 101, 126, 155n5, 167n20 deregulation 73, 87–8, 170n19 Dimand, R.W. 123, 157n26; and Dimand,

M.A. 94 discretion 4, 5, 31, 52, 63–4, 65–6, 70, 74, 79, 85–6, 89, 91, 97, 124–5, 127, 133, 138, 145–6, 164n48; constrained discretion 90, 171n5; Keynes on discretionary rule 80–3, 93–4, 144 disequilibrium, aggregate 16, 28, 61, 65, 69, 74–6, 77–8, 95, 120, 140, 142 Dos Santos Ferreira, R. 105, 121, 134, 165n6 Dostaler, G. 10, 11, 19, 22, 67, 159n14 dynamics: between employment and prices for Friedman 76–7, 101, 156n16; between employment and wages for

Keynes 25–6, 118–9; of a monetary economy 21–2, 28, 90, 117–18, 142

economy: competitive (free-exchange or laissez-faire) 7, 11, 18, 32, 41, 50, 52, 64, 68–9, 148; Friedman’s neutral 111–13, 114, 117; Keynes’ monetary (or money-wage, or entrepreneur) 61, 75, 105–7, 116–17, 120–1, 140, 151;

Keynes’ neutral 105; Keynes’ real 105; monetary 2, 8, 26, 34, 36–8, 55, 57, 65 equality 46, 159n11 ex ante and ex post 12, 15, 51, 141 expectations 8, 21, 64–5, 79, 101, 139–41; expectations critique 22–4, 29–30, 77; inflationary (or nominal) 5, 29, 50, 57–8, 67, 90, 98, 117, 126–7, 141–2; myopic (or short-sighted) 24, 31, 93; rational 8, 21, 64–5, 78, 119, 123, 134, 139–40, 142; real 3, 8, 59, 68, 75, 79, 83, 79–81, 93, 104–5, 109–10, 120–2, 130–2 externalities 36, 47, 159n18, 159–60n19; see also third party effects

failures: coordination 69, 72, 116–17, 120–2, 148; government 72, 151; market 57, 69, 78, 85 financial innovations 88–9, 150 financial markets: crisis 4, 7, 34, 54–6; functioning 37–8, 42, 65, 88–9, 111, 134–7, 140, 148; speculation on 38, 88–9, 121, 124 fine tuning 4, 31, 91, 95, 97, 99–100, 138, 142, 145–6 Fisher, I. 30, 171n8 Forder, J. 30, 31, 157n25 free banking 51, 154 free silver movement: Friedman on the 141–2 free society 40, 48–9, 50–1 freedom: versus efficiency 2, 39–41; versus planning 2, 9, 38, 151–2 functional finance 6, 10, 16, 32, 91, 97–8, 145, 155n5, 168n31 full employment: Friedman on the measurement of 72–4; Keynes on the measurement of 71–2

goods: aggregate 58, 104, 169n7; capital and consumption goods 104, 110, 116, 122; capital goods 38, 91, 94, 96, 100, 106–8, 118, 122; see also ‘shmoo’,

Leijonhuvud on Goodfriend, M. 70, 165n1 Gordon, R.J. 158n9 gradualism 120, 125 Great Contraction: Friedman and Schwartz on the 56–7, 162n31, 166n9 Great Depression 4, 7, 45, 67, 147, 161n28, 162n32 Great Recession 54, 62–4 Greenspan, A. 158n9

Hammond, J.D. 162n35 Hayek, F.A. 2, 9, 49, 55, 58, 62, 139, 144, 151–3, 161n30, 164n46, 164n49, 166n14, 172n11 Hayes, M.G. 106–7, 109, 113, 168n3, 168n4 Hicks, J.R. 62, 168n5 Hirsch, A. and de Marchi, N. 11, 12, 19–20, 22, 40, 155n2, 155n4, 155n9 Hoover, K.D. 138

inflation: Keynes on ‘true’ 27; as a monetary phenomenon 14–85–6;

‘relative’ inflation (Hayek on) 55 inflationary: bias 72–3, 97, 98; gap 10, 12–14; policies 6, 26–7, 30, 75–6, 119 information 16, 32, 37, 39, 44, 73, 79, 82, 94, 99, 106, 119–20, 125, 136, 140, 144; see also uncertainty

k per cent rule 80, 82, 86 Knight, F.H. 113, 141 Kocherlakota, N.R. 66 Kuznets, S. 17, 159n12 Kydland, F.E. and Prescott, E.C. 78, 100

Laidler, D. 65, 70, 76, 111, 119, 137, 139, 143, 148, 156n16, 165n3, 165n8, 169n14, 172n8 Leijonhufvud, A. 17, 18, 21, 30, 64–5, 72, 107–9, 121, 137, 141, 156n11, 156n14, 164n44, 164n47, 168n5, 169n11, 170n15 Leeson, R. 23, 26, 28–9, 156n12, 157n23, 157n24 Lerner, A.P. 15–16, 91, 97, 145 liberalism: classical (old principles of) 7, 33, 35–7, 42, 46, 52, 151, 152; new 7, 33, 46, 68, 150 libertarianism 3, 9, 46–8, 69, 92, 146 Lipsey, R.G. 23 liquidationists 58–9, 62, 161n29, 163n39; see also real bills doctrine liquidity 8, 38, 56, 58, 63, 81, 104–7, 124; preference 8, 58, 61, 81, 83, 107, 109, 112, 118, 120; premium 106, 122; risk 106–7, 113–4; trap 58, 61, 66, 70, 99, 125, 130; see also zero bound rate loanable funds 114, 116, 123, 126, 169n10 Lucas, R.J. 77–8, 100, 119, 123, 166n10, 171n5; and Rapping, L.A. 78

marginal efficiency of capital 62, 74–5, 80, 108, 110, 118, 120–2 Marshall, A., Marshallian 11, 19–22, 35, 65, 118, 120, 140–1, 156n18, 159n12 Meade, J.E. 18, 95, 98 Meltzer, A.H. 124, 140 metaphor: Friedman on gambling houses 136, 159n12; Friedman on the helicopter drop 125, 128–9; Friedman on the tree leaves or the billiard player 40–1, 159n13; Keynes on the beauty contest 121; Keynes and the buried bottles with banknotes 129, 170n16; Keynes and the deferred diner 120; Lerner and the steering wheel 97–8, 145 ‘Middle Way’ doctrine 3, 9, 45–6, 95, 124, 147, 151–2, 153 Miller, A. 55 modern economies 2, 7, 19, 32–3, 37–8, 46, 48, 89, 147–8, 160n19 Modigliani, F. 23, 77 Moggridge, D.E. and Howson, S. 62, 80, 82 monetary: attribute 106–7; authority 4, 33, 51, 63, 67, 69, 81, 85, 90, 147 (see also central bank); disorders 7, 74, 76, 78–9, 118; economy see economy money: dear 59, 80, 167n16; illusion 25–6, 75 multiplier: investment 17; money 58, 88, 167n23

National Investment Board 44, 95 nationalisation 95, 159n17 natural rate: of interest 60, 83, 89, 114–16, 119, 123–4, 135, 137, 161–2n30, 171n5; of unemployment see full employment New Classical Revolution 65, 140, 143, 146, 171n3 non-monetary assets 107–9, 110, 122, 124; see also aggregation

O’Donnel, R.M. 44, 45, 124, 152, 158n1 optimal control 9, 30, 32, 125, 133, 142, 145–7; see also fine tuning Orphanides, A. 172n5 overshooting 129–34

parable see metaphor Phillips, A.W. 23, 25, 28–9, 31, 157n24 planning 3, 28, 45, 84; see also freedom versus planning policy philosophy 34, 42, 67–9 positive economics 16, 39–40 publicness, degree of 46 public-private partnership 5, 8, 43, 45, 95, 150 public works 47, 60, 61–2, 67–8, 70, 75, 92–3, 122–3, 152 pump-priming 5, 9, 62, 92–3, 150

q, Tobin’s 128, 150n15 quantitative theory of money 55, 107

rational expectations see expectations rationality: collective 3, 41, 44, 46, 52–3, 73, 82; individual 36–7, 40–1, 44 real bills doctrine 55–6, 161n29 rent 44, 52 rigidities, nominal 27, 54, 57, 61, 75, 78, 87, 97, 101, 118, 133, 144, 149, 157n19, 162n34 Robbins, L.C. 55, 91 Rosanvallon, P. 159n11 rule versus discretion 4, 8, 66–7, 71, 138–9, 142–5 Index 189

190 Index

Samuelson, P.A. 58, 163n36; and Solow,

R.M. 23, 29–30 Say, J.B. 48 Say’s law 2, 38, 48, 64 secular stagnation 17, 41 Sen, A. 37, 53 ‘shmoo’, Leijonhuvud on the 108 Simons, H.C. 138, 147–8, 172n9 Skidelsky, R. 46, 64, 95, 153 Smith, A. 35–6, 39–40, 47–9, 148, 154, 160n20 Smithin, J. 109, 111, 115–16, 123, 127, 137, 154, 169n10, 169n11 social responsibility of business 42, 47–8, 49 socialisation of investment socialism 45, 49 Solow, R.M. 23, 66, 157n25 speculation, on financial markets 59, 64, 75, 88, 94, 124, 135–7, 150, 169n8 stabilisation 1, 5, 8, 28–9, 101, 133–4, 142, 144, 150; policy 29, 62, 66, 84–6, 93, 97–8, 117–18, 125, 129, 137, 143, 145–7 stability 3, 7–8, 17, 31, 35, 55, 63, 70, 71, 88, 90–1, 98, 99, 101, 113, 137; properties 2, 4, 11, 18, 29, 32, 35–6, 38, 41, 55, 64, 67–8, 74, 83, 100, 102–3, 135, 142, 144, 147 stakeholders 43, 48 ‘state of the world’ see uncertainty stop-and-go policy 30, 145 Strong, B. Jr 55, 57

tap issue 82, 166n13 tax : corporate 50, 161n23; inflation 26; negative income 39; on spendings 13–15, 18, 65, 94, 97–8, 129–30, 146, 155n2, 160n20 Taylor, J.B. 4, 63–4, 164n44, 168n26, 169n12 Taylor rule 143–4, 164n44, 171n5 third party effect 47; see also externalities Tobin, J. 23, 128, 130–1, 146, 162n35, 163n38 trade-unions 26, 43, 46, 73, 167n16 ‘transmission mechanism’ 8, 56, 60, 76–8, 104, 125–9, 130–4 Treasury View 67, 99, 123, 146

uncertainty 3, 5, 7–8, 80, 84, 95, 100, 103, 116–17, 124, 134, 136–8, 140, 147–8, 151; data-uncertainty 15, 16, 30, 73, 89; model-uncertainty 15, 30, 73, 89, 101; opposed to risk 34, 37–8, 100–1, 103, 106–9, 113–14, 115, 141–2, 158n6 unconventional monetary policy 60, 66, 125, 129 unemployment 53–4, 63–4, 75–8, 85–6, 100, 118; involuntary 38, 72–3, 75, 165n4; structural 7, 72–4; voluntary 72; see also full employment

velocity of money 88–9, 130, 167n23, 167n25, 168n26, 170n19 Vercelli, A. 34–5, 38 vouchers: schooling 50, 51

wages: cuts or (wage policy) 92, 98, 149–50, 156n16, 157n20; money and real 24–5, 26, 75–6, 118–19; moneywage and unemployment 23–4, 25, 28–9, 45, 53, 77–8; relative 25, 75; see also rigidities Walras, L., Walrasian 10–11, 19–21, 72, 120 Wicksell, K. 114

zero bound rate 164n48