catallaxy files

catallaxy in technical exile

Libertarian monetary infighting

with 12 comments

Stephen Kirchner reports that he has been critically quoted in a paper by Larry White from a recent Cato conference as follows:

Inflation targeting is not a market-based policy. Contrary to economist-blogger Stephen Kirchner (2006), Ben Bernanke is not a prophet of “the view that markets and not monetary policy should determine growth rates in broad money, credit aggregates and asset prices.” In a fiat money regime, the central bank controls the monetary base, and broad money is geared to the base via the money multiplier, so monetary policy-makers and not markets determine growth rates in broad money. Under inflation targeting, the Fed would adjust the base and thereby broad money to support the targeted price level path. In that sense the quantity of money becomes endogenous. It’s not really helpful to call that “markets” determining money growth.

Kirchner has been a consistent critic of the Austrian business cycle theory from the libertarian right – see also this earlier and longer post.

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Written by Admin

November 21, 2006 at 11:20 am

Posted in Uncategorized

12 Responses

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  1. test

    Jason Soon

    November 21, 2006 at 11:44 pm

  2. Did Stephen go a whiter shade of pale?

    Bring Back CL's Blog

    November 22, 2006 at 12:20 am

  3. “Kirchner has been a consistent critic of the Austrian business cycle theory from the libertarian right – see also this earlier and longer post.”

    Did he disprove it?

    Has he got some sort of an argument against it?

    GMB

    November 22, 2006 at 1:50 am

  4. Kirchner isn’t really a critic. He’s a critic of the “fever swamp”. The ABCT doesn’t necessarily mean there will be recessions, rather inflation has serious long term growth repercussions which MAY cause a recession if the capital shortening or hysterysis is severe enough.

    More importantly than doomsday predicitons, are the long term effects of capital misallocation which reduce our growth rates, due to credit mispricing. In the short run the reduced purchasing power of those on fixed or low incomes is more important as the inflation works both to reduce the scarcity of money, then to reduce productivity of workers. This is what Roubini et al., do not get – the long term, insidious effects of inflation are probably much worse than improbable doomsday events.

    There has been plenty of anedcdotal and regression analysis supporting the ABCT, and the 1991 recession is the last catastrophic event that is best described by the ABCT. But of course there is both the mispircing of credit and labour market controls that excaserbate this situation.

    In the market however, M3 does cause M1 and M0, as an inflation rule would. Therefore the market should supply M1 and M0.

    Mark Hill

    November 22, 2006 at 2:06 am

  5. “In the market however, M3 does cause M1 and M0, as an inflation rule would. Therefore the market should supply M1 and M0.”

    No thats not right. Who told you that? Did Kirchner tell you that?

    That M3 CAUSES M1 AND M0?

    Where is your evidence for that.

    Without checking the data I would inductively say that an upswing in M3 would likely come ahead-in-time of a similiar up-swing in M1……

    And like-wise a down-swing in M3 ought to come ahead-in-time of a downswing in M1.

    But this doesn’t mean that M3 CAUSES M1.

    Lets hear your reasoning and see your evidence.

    GMB

    November 22, 2006 at 4:13 pm

  6. Graeme, I’ve told you this before, and it not only makes sense as the demand for final goods and labour increases, so do all other commodities, but it has been shown by means of Granger causality.

    If you argue against Granger causality, there probably isn’t any kind of causation anywhere, ever.

    Mark Hill

    November 22, 2006 at 4:29 pm

  7. Steve says:
    “In a fiat money regime, the central bank controls the monetary base, and broad money is geared to the base via the money multiplier, so monetary policy-makers and not markets determine growth rates in broad money”

    He’s wrong. if policy makers control the price, they can’t control the demand for money, especially in our current regime when the supply is unlimtied, ie the central bank has to supply what is immediately demanded.

    This is the flaw in the the system I have always pointed out.

    JC.

    November 22, 2006 at 4:30 pm

  8. This makes the system fatally flawed.

    JC.

    November 22, 2006 at 4:32 pm

  9. “but it has been shown by means of Granger causality.”

    No it hasn’t.

    And if it has it hasn’t been shown around here.

    And even if it has (which it HASN’T) I’m not the least bit interested in GRANGERS causality.

    I’m only interested in REAL causality so you show it.

    Mark you get sucked in sometimes fella.

    Now I ask you?

    Did Kirschner tell you this stuff?

    GMB

    November 22, 2006 at 7:19 pm

  10. Birdy
    Steve is on the the righteous side of things but I have to disagree with him over monetary issues. He loves fiat. He would marry the bloody junk if he could.

    JC.

    November 22, 2006 at 7:28 pm

  11. Just pass over this fault as you would if one had a below scratch sibling. You always end up forgiving him/her.

    JC.

    November 22, 2006 at 7:29 pm

  12. who here would actually hold arbitrarily inflatable money if they had a choice…i wouldn’t…

    if it was convenient i would hold some fixed currency and some assets denominated in that fixed currency…

    c8to

    November 22, 2006 at 7:54 pm


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