Financial Markets, Money and the Real World

Contents......Page 6
List of figures and tables......Page 10
1.1 Postwar economic performance......Page 12
1.2 Keynes's revolution......Page 15
1.3 The academic resurrection of classical economics......Page 17
1.4 Differing views on the role of financial markets......Page 18
1.5 Five key points......Page 20
1.6 Keynes, the poet of money......Page 22
1.7 A brief outline of this monograph......Page 24
2.1 Is lack of competition the fundamental cause of unemployment? Liquidity versus Say's Law......Page 28
2.2 Say's Law......Page 30
2.3 Classification and the principle of effective demand......Page 32
2.4 Why flexible wages do not assure full employment......Page 37
2.5 Some further clarifications......Page 38
Appendix 2A1  A simple illustration of the principle of effective demand......Page 39
Appendix 2A2  Deriving Keynes’s aggregate supply and demand analysis from Marshallian micro demand and supply functions......Page 42
3.1 A parable: the fable of the P's, or what mortals these P's fool!......Page 50
3.2 Axioms and model building......Page 51
3.3 Classical axioms and money's elasticity properties......Page 54
3.4 Two concepts of economic reality......Page 57
3.5 A brief excursion into the history of economic thought......Page 58
3.6 Uncertainty and ergodic stochastic processes......Page 61
3.7 Immutable versus transmutable theories of reality......Page 64
3.8 Uncertainty and 'irrational' behavior......Page 67
3.9 Crucial decisions and Schumpeterian entrepreneurs......Page 68
Appendix 3A  Are probabilities knowable but unknown because of limited human computing power?......Page 71
4.1 Two types of investment......Page 81
4.2 Markets, contracts, liquidity and chartalist money......Page 82
4.3 Financing and funding assets: why money matters......Page 87
4.4 Asset position taking and liquidity......Page 89
4.5 Real capital, savings, time preference and liquidity preference......Page 91
4.6 Attributes of all durables......Page 94
5.1 The four motives for holding money......Page 98
5.2 The demand for the medium of contractual settlement......Page 100
5.3 The demand for a liquid time machine......Page 101
5.4 Bulls versus bears......Page 103
5.5 The finance motive and endogenous money......Page 107
5.6 The finance motive, finance and funding......Page 108
5.7 Endogenous versus exogenous money......Page 111
6.1 The double-edged sword of financial markets......Page 115
6.2 Market liquidity, fast exits and funding investments......Page 116
6.3 The market for securities......Page 121
6.4 The different role of banks and nonbank financial intermediaries......Page 123
6.5 Bank loans and money-market financial intermediaries......Page 126
6.6 Conclusion......Page 128
7.1 Harrod's actual, warranted and natural rates of growth......Page 131
7.2 Planned savings and the supply of financial assets......Page 133
7.3 Ownership and liquidity......Page 135
7.4 External funding and savers' 'nonspeculative' demand for securities......Page 136
7.5 Actual growth when new issues exceed the nonspeculative demand for securities......Page 138
7.6 The contractionary case with a bull market......Page 140
7.7 Economic growth, liquidity and funding 'other' spending sectors......Page 141
7.8 Some conclusions......Page 143
8.1 Open versus closed and unionized versus non-unionized monetary systems......Page 147
8.2 Aggregate accounting as a basis for the closed–open dichotomy......Page 148
8.3 The accounting value of exports and imports and transfer pricing......Page 151
8.4 The balance of payments accounting statement......Page 152
8.5 Measuring the degree of openness......Page 154
8.6 The UMS–NUMS classification......Page 156
8.8 Was the gold standard a UMS?......Page 158
9. Trade imbalances and international payments......Page 161
9.1 Classical real adjustment processes......Page 162
9.2 Trade adjustments, payments adjustments and the Marshall–Lerner condition......Page 164
9.3 Income effects and payments imbalances......Page 168
9.4 Thirlwall's Law: extending Harrod's trade multiplier analysis......Page 169
9.5 The demand for money – domestic or international......Page 172
9.6 The need for reserves......Page 174
10.1 The facts versus the theory of flexible exchange rates......Page 180
10.2 Fixed versus flexible exchange rates and asset holdings......Page 181
10.3 The efficient market hypothesis again......Page 185
10.4 Who should 'make' the exchange rate market?......Page 186
11.1 Efficiency versus liquidity......Page 191
11.2 Taxing volatility: theory versus the facts......Page 192
11.3 Ergodicity, efficient markets and noise traders......Page 193
11.5 Keynes, speculation and liquid financial markets......Page 197
11.6 Keynes, liquid financial markets and the empirical findings......Page 199
11.7 Ergodicity, efficient markets and the empirical findings......Page 201
11.8 Are real capital allocation decisions efficient?......Page 203
11.9 Speculative whirlpools and bandwagons......Page 204
11.10 A policy implication: buffering conventional wisdom......Page 206
12. Exchange rates and the Tobin tax......Page 211
12.1 Is social control of exchange markets bad?......Page 213
12.2 Capital uncertainty, speculative flows and the Tobin tax......Page 214
13. The plumbers’ solution to destabilizing international capital flows......Page 224
13.1 Capital movements......Page 225
13.2 Flexible exchange rates and export-led growth......Page 226
13.3 Explaining the facts......Page 229
13.4 A lesson from the gold standard era......Page 233
13.5 Plumbing solutions to end financial market volatility......Page 234
13.6 The Bretton Woods experience and the Marshall Plan......Page 236
14.1 Reforming the international payments system......Page 242
14.2 Alternative financial architectural proposals......Page 248
14.3 Criticism of Williamson's FEER proposal......Page 249
14.4 Criticism of McKinnon's PPP proposal......Page 252
14.5 A comparison of the three architectural proposals......Page 253
14.6 What if?......Page 257
14.7 Conclusion......Page 260
15.1 The positive role of government......Page 264
C......Page 268
E......Page 269
F......Page 270
I......Page 271
L......Page 272
O......Page 273
S......Page 274
T......Page 275
W......Page 276