What I Am Reading Tonight

|Peter Boettke|

J. M. Buchanan and R. Wagner. The Consequences of Mr Keynes. 1978.

H. G. Brennan and J. M. Buchanan. Monopoly in Money and Inflation: The Case for a Constitution to Discipline Government. 1981.

M. Friedman and C. Goodhart. Money, Inflation and the Constitutional Position of the Central Bank. 2003.

E. Butler. Ludwig von Mises -- A Primer. 2010.

Each of these titles were (are) published by the great Institute for Economic Affairs of London.  IEA has always played the important role of not only representing liberal ideas in the UK policy discourse, but in promoting sophisticated economic argument and the best of contemporary scholarship in economics.

I am also reading L. Kotlikoff's Jimmy Stewart is Dead: Ending the World's Ongoing Financial Plague with Limited Purpose Banking. 2010. 

I'd be very interested in a discussion among our readers (and Steve) on Kotlikoff's proposal or for that matter the older Chicago School proposal for monetary stability developed after the Great Depression.  I think that might produce a more fruitful discussion; I know it will produce a conversation that is more directly relevant to the problems the global financial crisis has thrust upon us.

Comments

[Current]

I've been arguing against Toby Baxendale's version of the Chicago plan over at the Cobden Centre blog.

http://www.cobdencentre.org/2010/05/the-emperors-new-clothes-how-to-pay-off-the-national-debt-give-a-28-5-tax-cut/

I discussed it a lot with the Cobden centre folks over private email.

My take on it is this, currently demand deposits pay some interest and don't have fees. A Chicago plan means replacing demand deposits with some form of monetary base. That means they can't pay interest any more and banks will charge fees for banking. That will give people an incentive to spend their money on bonds. On the margin people will tend to substitute debt relationships for exchanges of money.

The demand for money will fall and there will be high price inflation. That price inflation may only occur for a short time after the reform, but I think it could be very disturbing.

There are various long term problems too... Changes in the demand for money will only be able to be dealt with by changes in prices. As Steve said recently that would be damaging. Even if attempts were made to direct the quantity of money it couldn't possibly be done well in a centralized fashion. Investment funds will be lessened because of the lack of investment from demand deposits. Any technology that reduces the demand for money could cause a spurt of price inflation.

[aje]

As referred to by current - once you've finished that reading list Toby is offering £1,000 to anyone that can point out a flaw in his proposal to abolish boom bust, pay off the national debt, and give a one off income tax cut, all in one go:

http://www.cobdencentre.org/2010/05/the-emperors-new-clothes-how-to-pay-off-the-national-debt-give-a-28-5-tax-cut/

[Jerry O'Driscoll]

Pete,

I've just begun reading Kotlikoff and haven't got to the proposal stage. I'll jump back in when I'm there.

Friedman updated the Chicago Plan in 1960 and proposed that the Fed pay interest on reserves so that 100% reserve banks could pay interest on deposits. So the Fed has put one element of Friedman's version of the plan in place.

This issue obviously links to the free banking debate.

[Will Luther]

Pete,

I've ordered The Consequences of Mr Keynes, Monopoly in Money and Inflation, and Jimmy Stewart is Dead. I look forward to the conversation.

[Current]

"Friedman updated the Chicago Plan in 1960 and proposed that the Fed pay interest on reserves so that 100% reserve banks could pay interest on deposits. So the Fed has put one element of Friedman's version of the plan in place."

Interesting I didn't know that. Where did he write that?

[Peter Boettke]

Jerry and Will,

I plan on posting various passages from Kotlikoff's book over the next few weeks. I actually had him come and give a talk on intergenerational accounting a few years back, which I also thought would reignite a GMU-centric debate about deficits and debt and creative proposals to curb the spending of government. But that sort of fell on deaf ears.

Richard Wagner is working on a book now dealing with what he calls the budgetary commons. I have read his basic proposal on the project and I believe it to be absolutely brilliant.

In thinking about the political economy of money and public finances I have simultaneously become more appreciative of Buchanan's efforts at constitutional craftsmanship and more convinced of the radical libertarian position on analytical and consequentialist grounds. Is that a contradiction?! At face value it certainly is, but I hope that those who see what I am up to will find that it is not contradictory.

[Jerry O'Driscoll]

The Friedman update was in A Program for Monetary Stability.

[Jerry O'Driscoll]

Pete -- Good! It's a powerfully argued book.

[Toby Baxendale]

Dear All,

http://www.cobdencentre.org/2010/04/jimmy-stewart-is-dead/ This is my book review of "Jimmy Stewart is Dead" by Kotlikoff.

I hope this is of some interest

[Jordan retro 10]

I'm shocked to find out how much of information I received on this matter. I m so extremely thankful of you. The one thing I can claim that, after reading this article I got preserved from the total ineffective search I ought to have made on this specific issue. Your post is a serious blessing in disguise.

[topills.com review]

I got preserved from the total ineffective search I ought to have made on this specific issue. Your post is a serious blessing in disguise.