I'm inspired. This lecture is really inspired by the reading for this week, this reading by Allen Young. How many of you have had a look at this yet? Okay, good, good. I hope you found it easy, easy enough reading. It's an, it's an encyclopedia entry, so there's no math. There's a lot of sort of history and institutions and it's quite wild and wooly story, right, about Amer, American monetary history it's, it, it's very difficult, in fact, to disentangle all the different, all the different pieces and and I'm going to try to start doing that a little bit in today's lecture. but what I want to alert you to as you're reading it, is Alan Young's own You know? Where, where his head was. He's writing this in 1924, okay? So this is after World War, after World War I. he was John Maynard Keynes counterpart at Versailles. during the post war agreement about who pays what. So he was the stats man. He was the economist there. And not at all a famous man, like, like, like Keynes. But very much a contemporary of, of Keynes. A much quieter personality. he i, i, if you read this article carefully you will note that he is taking positions on quite a number of important controversial issues in monetary economics. Now you wouldn't know what those positions are, because you don't know the literature that he's reacting to, and he's not footnoting it, because it's an encyclopedia entry. Right. So So let me just give you a hint about some of the things to look for as you're, as you're looking through here. One of the things he is doing is, is, he is going against economic orthodoxy. In 3 dimensions. the first one is this discussion that he starts off with of barter. The notion that money is just there, we just use money because of the inconvenience of barter. Okay. This is a very old trope in, in economics. It actually was Jevons and he wants to say no. Okay, money has always been there, ever, ever since trade, it's very fundamental, it's built, it's baked into the cake. It's not something, there was never a period when people were trading goods for goods, there was always money. It's, it's much more fundamental than economists are accepting. He's also saying that money is key for, is key for growth. I think in the second chapter you're reading, that you can't imagine the successful economy, or a, a developing economy, gr-, a successful depends on a proper financial system. And that if you don't have a proper financial system, you're not going to be able to grow. Here again, this is against economic orthodoxy of his time, and to, to some extent, e-, economic orthodoxy of our time. I mean, if you took growth theory the solo growth model right? What, what causes growth? Okay, there's productivity change, there's capital accumulation, there's, there's population growth. Where is there the financial system? It's like in fact there isn't any money, there isn't any finance. There's nothing like that in that, in that, in that model. And the technology, technological change, is a residual, so any growth that was actually due to financial, financial things is just dropped into that residual and attributed to tech, technological change. So, so this is still the case, that most economists. Have a kind of bias toward the real side, you know, they tend to think of money as sort of a veil that we should look through to see the real stuff underneath, you know, productivity and so forth. And, and, and Young is saying, no, no, not at all, okay, this is the fundamental factor in, in economic activity. And, and so that's against economic "orthodoxy". The third thing, That he mentions, is the currency principle. I mentioned that last time, the currency principle. This idea that, the, the principle of scarcity, okay? That is, A lot, most economists I would say had the idea that money gets its value from its scarcity. Because that's the general theory of value that in, in neoclassical economics that's what, where value comes from. It's scarcity relevant to demand. And so, they're always worried that these little green pieces of paper are going to lose their value, if they're over issued. If supply exceeds demand, they're just going to fall in price. And you're going to have hyperinflation or something like that. So, the currency principle Eh, the scarcity principle is very much embedded in, in the way economists think about money as being quite important for sustaining its value. He's, he has a big critique of the currency principle. Right? He says that the national banking system was created on the basis of the currency principle. They wanted to limit the money issue and they wanted to limit the deposit issue. As a consequence, there wasn't sufficient elasticity. And it caused periodic financial crises. So, he's a critic of the currency principle. And he's saying there has to be more elasticity in the system. And the Fed arose to give that elasticity. So, the, these, he's he, he, he writes very smoothly, and so you would never know that he's taking positions that are actually. Relatively controversial, as a matter of fact, by your average economist. Now he was not your average economist. He was professor of monetary economics at Harvard University, and he was the adviser to Benjamin Strong with the New York fed. Okay. But he was certainly in the minority, so he might have been important, but this was not at all the standard way of understanding money, and it's not today either. Okay. I think it's always a minority position, But its not a minority position inside central banks, and by people who, who, who are, are, are dealing with money for a living. These are, so these are 3-dimensions that you'll see where he's engaging with the economists. There are 3 other dimensions of this. Where he's engaging more with the outside world. And with what, what the, the opinions that the average person might, might be having. one is, he's opposed to what we call today the Chartalists. I don't think he calls them the Chartalists. Okay? But this notion that the reason that these dollar bills have value. Okay? Is because of the power or the state or the, the state stamp of certification [INAUDIBLE] or something. That this is some kind of, of, that the state asserts through its legal system. This is legal tender and that establishes us. The le, the legal system establishes the value of that dollar. Okay. he says, actually, no, okay, that he has quite a paragraph or 2 there, where he says, there's a theory about this but it just doesn't make any sense, okay. So, he is, that's, that's about the power of the state. As the origin of the value of money. Another group that he is trying to differentiate himself from is is finance as well. So he's, he's saying he's definitely not an efficient markets guy. There, all along the side, you, you hear him pointing out how the inefficiency of the way the monetary system works under the national banking system, caused asset prices to go up and down and their crashing. So their asset prices are fluctuating quite apart from fundamental values okay. So their not, its, he's not an efficient markets person saying that asset prices. Are, are always the correct level. He's opposed to speculation. He says that speculative bubbles are a problem for, for, for capitalism, and that there, there needs to be some engagement of public policy to control that. So he's, he's, he's putting himself on the side against the speculators. and perhaps most of all, for the time he's writing, populists. Okay. He's on the side of the federal reserve against those who see it as a big behemoth central bank that's come to control our lives. Okay. He thinks we need a central bank, and he's trying to explain here Why it's a good thing. Why, where it came from. It was a response to real problems in, in, in the economy. It's a good thing. he, a populist in particular, you'll, you'll see he mentions William Jennings Bryan. 1896, thou shalt not crucify On this cross of gold. Famous speech from the Democratic Convention. and, and Young is very much in favor of returning to the gold standard. Okay? So he wants the dollar to be convertible into gold. In fact, his view of what the source or the value of the dollar is is exactly that. The, the, the value, the dollars is valuable because it's convertible into gold. Okay? That's, that's the, that's the answer. there. And, and that kind of idea is one of the things that I was starting with yesterday, the la, the last, the last lecture, right? Gold was at the top, everything was a promise to pay gold ultimately. Okay. So it's conistent with this, with this point of view. so he thinks we should have a central bank. He thinks the gold standard's a good thing. But he doesn't think it, it, it works perfectly well. We need to get, we need to develop a better financial institutions. [BLANK_AUDIO]
