,AGA9/ ,ECONOMICS 

,PEOPLE 3 

,AU?OR 3 ,DAVID ,GRAEB] 

,TEXT 3 

,!RE IS A GR[+ FEEL+1 AMONG ?OSE :O HAVE ! RESPONSIBILITY ( MANAG+ L>GE ECONOMIES1 ?AT ! DISCIPL9E ( ECONOMICS IS NO LONG] FIT = PURPOSE4 ,IT IS BEG9N+ TO LOOK LIKE A SCI5CE DESIGN$ TO SOLVE PROBLEMS ?AT NO LONG] EXI/4 

,A GOOD EXAMPLE IS ! OBSESSION ) 9FLATION4 ,ECONOMI/S /ILL TEA* !IR /UD5TS ?AT ! PRIM>Y ECONOMIC ROLE ( GOV]NM5T--MANY W\LD 9SI/1 ITS ONLY REALLY PROP] ECONOMIC ROLE--IS TO GU>ANTEE PRICE /ABILITY4 ,WE MU/ BE CON/ANTLY VIGILANT OV] ! DANG]S ( 9FLATION4 ,= GOV]NM5TS TO SIMPLY PR9T MONEY IS !RE=E 9H]5TLY S9FUL4 ,IF1 H[EV]1 9FLATION IS KEPT AT BAY ?R\< ! COORD9AT$ ACTION ( GOV]NM5T & C5TRAL BANK]S1 ! M>KET %\LD F9D ITS 0NATURAL RATE ( UNEMPLOYM5T10 & 9VE/ORS1 TAK+ ADVANTAGE ( CLE> PRICE SIGNALS1 %\LD BE ABLE TO 5SURE HEAL?Y GR[?4 ,!SE ASSUMPTIONS CAME ) ! MONET>ISM ( ! #a#i#hS1 ! IDEA ?AT GOV]NM5T %\LD RE/RICT ITSELF TO MANAG+ ! MONEY SUPPLY1 & BY ! #a#i#iS HAD COME TO BE ACCEPT$ AS SU* ELEM5T>Y COMMON S5SE ?AT PRETTY MU* ALL POLITICAL DEBATE HAD TO SET \T FROM A RITUAL ACKN[L$GM5T ( ! P]ILS ( GOV]NM5T SP5D+4 ,?IS CONT9UES TO BE ! CASE1 DESPITE ! FACT ?AT1 S9CE ! #bh RECESSION1 C5TRAL BANKS HAVE BE5 PR9T+ MONEY FRANTICALLY 9 AN ATTEMPT TO CREATE 9FLATION & COMPEL ! RI* TO DO SOME?+ USEFUL ) !IR MONEY1 & HAVE BE5 L>GELY UNSUCCESSFUL 9 BO? 5DEAVORS4 

,WE N[ LIVE 9 A DIFF]5T ECONOMIC UNIV]SE ?AN WE DID BE=E ! CRA%4 ,FALL+ UNEMPLOYM5T NO LONG] DRIVES UP WAGES4 ,PR9T+ MONEY DOES NOT CAUSE 9FLATION4 ,YET ! LANGUAGE ( PUBLIC DEBATE1 & ! WISDOM CONVEY$ 9 ECONOMIC TEXTBOOKS1 REMA9 ALMO/ 5TIRELY UN*ANG$4 

,ONE EXPECTS A C]TA9 9/ITUTIONAL LAG4 ,MA9/REAM ECONOMI/S N[ADAYS MI<T NOT BE P>TICUL>LY GOOD AT PR$ICT+ F9ANCIAL CRA%ES1 FACILITAT+ G5]AL PROSP]ITY1 OR COM+ UP ) MODELS = PREV5T+ CLIMATE *ANGE1 BUT :5 IT COMES TO E/ABLI%+ !MSELVES 9 POSITIONS ( 9TELLECTUAL AU?ORITY1 UNAFFECT$ BY SU* FAIL+S1 !IR SUCCESS IS UNP>ALLEL$4 ,ONE W\LD HAVE TO LOOK AT ! HI/ORY ( RELIGIONS TO F9D ANY?+ LIKE IT4 ,TO ?IS DAY1 ECONOMICS CONT9UES TO BE TAU<T NOT AS A /ORY ( >GUM5TS--NOT1 LIKE ANY O!R SOCIAL SCI5CE1 AS A WELT] ( (T5 W>R+ !ORETICAL P]SPECTIVES--BUT RA!R AS SOME?+ MORE LIKE PHYSICS1 ! GRADUAL REALIZATION ( UNIV]SAL1 UNIMPEA*ABLE MA!MATICAL TRU?S4 0,HET]ODOX0 !ORIES ( ECONOMICS DO1 ( C\RSE1 EXI/ 79/ITUTIONALI/1 ,M>XI/1 FEM9I/1 0,AU/RIAN10 PO/-,KEYNESIAN44471 BUT !IR EXPON5TS HAVE BE5 ALMO/ COMPLETELY LOCK$ \T ( :AT >E CONSID]$ 0S]I\S0 DEP>TM5TS1 & EV5 \TRI<T REBELLIONS BY ECONOMICS /UD5TS 7FROM ! PO/-AUTI/IC ECONOMICS MOVEM5T 9 ,FRANCE TO PO/-CRA% ECONOMICS 9 ,BRITA97 HAVE L>GELY FAIL$ TO =CE !M 9TO ! CORE CURRICULUM4 

,AS A RESULT1 HET]ODOX ECONOMI/S CONT9UE TO BE TREAT$ AS JU/ A /EP OR TWO AWAY FROM CRACKPOTS1 DESPITE ! FACT ?AT !Y (T5 HAVE A MU* BETT] RECORD ( PR$ICT+ REAL-WORLD ECONOMIC EV5TS4 ,:AT'S MORE1 ! BASIC PSY*OLOGICAL ASSUMPTIONS ON :I* MA9/REAM 7NEOCLASSICAL7 ECONOMICS IS BAS$--?\< !Y HAVE LONG S9CE BE5 DISPROV$ BY ACTUAL PSY*OLOGI/S--HAVE COLONIZ$ ! RE/ ( ! ACADEMY1 & HAVE HAD A PR(\ND IMPACT ON POPUL> UND]/&+S ( ! WORLD4 

,NO:]E IS ?IS DIVIDE BETWE5 PUBLIC DEBATE & ECONOMIC REALITY MORE DRAMATIC ?AN 9 ,BRITA91 :I* IS P]HAPS :Y IT APPE>S TO BE ! FIR/ C\NTRY :]E SOME?+ IS BEG9N+ TO CRACK4 ,IT WAS C5T]-LEFT ,NEW ,LABOR ?AT PRESID$ OV] ! PRE-CRA% BUBBLE1 & VOT]S' ?R[-!-BA/>DS-\T REACTION BR\<T A S]IES ( ,CONS]VATIVE GOV]NM5TS ?AT SOON DISCOV]$ ?AT A RHETORIC ( AU/]ITY--! ,*UR*ILLIAN EVOCATION ( COMMON SACRIFICE = ! PUBLIC GOOD--PLAY$ WELL ) ! ,BRITI% PUBLIC1 ALL[+ !M TO W9 BROAD POPUL> ACCEPTANCE = POLICIES DESIGN$ TO P>E D[N :AT LITTLE REMA9$ ( ! ,BRITI% WELF>E /ATE & R$I/RIBUTE RES\RCES UPW>D1 T[>D ! RI*4 0,!RE IS NO MAGIC MONEY TREE10 AS ,!RESA ,MAY PUT IT DUR+ ! SNAP ELECTION ( #b#a#g--VIRTUALLY ! ONLY MEMORABLE L9E FROM ONE ( ! MO/ LACKLU/] CAMPAIGNS 9 ,BRITI% HI/ORY4 ,! PHRASE HAS BE5 REPEAT$ 5DLESSLY 9 ! M$IA1 :5EV] SOMEONE ASKS :Y ! ,U,K IS ! ONLY C\NTRY 9 ,WE/]N ,EUROPE ?AT *>GES UNIV]SITY TUITION1 OR :E!R IT IS REALLY NECESS>Y TO HAVE QUITE SO MANY PEOPLE SLEEP+ ON ! /REETS4 

,! TRULY EXTRAORD9>Y ?+ AB\T ,MAY'S PHRASE IS ?AT IT ISN'T TRUE4 ,!RE >E PL5TY ( MAGIC MONEY TREES 9 ,BRITA91 AS !RE >E 9 ANY DEVELOP$ ECONOMY4 ,!Y >E CALL$ 0BANKS40 ,S9CE MOD]N MONEY IS SIMPLY CR$IT1 BANKS CAN & DO CREATE MONEY LIT]ALLY \T ( NO?+1 SIMPLY BY MAK+ LOANS4 ,ALMO/ ALL ( ! MONEY CIRCULAT+ 9 ,BRITA9 AT ! MOM5T IS BANK-CREAT$ 9 ?IS WAY4 ,NOT ONLY IS ! PUBLIC L>GELY UNAW>E ( ?IS1 BUT A REC5T SURVEY BY ! ,BRITI% RESE>* GR\P ,POSITIVE ,MONEY DISCOV]$ ?AT AN A/\ND+ #he P]C5T ( MEMB]S ( ,P>LIAM5T HAD NO IDEA :]E MONEY REALLY CAME FROM 7MO/ APPE>$ TO BE UND] ! IMPRESSION ?AT IT WAS PRODUC$ BY ! ,ROYAL ,M9T74 

,ECONOMI/S1 = OBVI\S REASONS1 CAN'T BE COMPLETELY OBLIVI\S TO ! ROLE ( BANKS1 BUT !Y HAVE SP5T MU* ( ! TW5TIE? C5TURY >GU+ AB\T :AT ACTUALLY HAPP5S :5 SOMEONE APPLIES = A LOAN4 ,ONE S*OOL 9SI/S ?AT BANKS TRANSF] EXI/+ FUNDS FROM !IR RES]VES1 ANO!R ?AT !Y PRODUCE NEW MONEY1 BUT ONLY ON ! BASIS ( A MULTIPLI] EFFECT 7SO ?AT Y\R C> LOAN CAN /ILL BE SE5 AS ULTIMATELY ROOT$ 9 SOME RETIR$ GR&MO!R'S P5SION FUND74 ,ONLY A M9ORITY--MO/LY HET]ODOX ECONOMI/S1 PO/-,KEYNESIANS1 & MOD]N MONEY !ORI/S--UPHOLD :AT IS CALL$ ! 0CR$IT CREATION !ORY ( BANK+03 ?AT BANK]S SIMPLY WAVE A MAGIC W& & MAKE ! MONEY APPE>1 SECURE 9 ! CONFID5CE ?AT EV5 IF !Y H& A CLI5T A CR$IT = @s#a MILLION1 ULTIMATELY ! RECIPI5T WILL PUT IT BACK 9 ! BANK AGA91 SO ?AT1 ACROSS ! SY/EM AS A :OLE1 CR$ITS & DEBTS WILL CANCEL \T4 ,RA!R ?AN LOANS BE+ BAS$ 9 DEPOSITS1 9 ?IS VIEW1 DEPOSITS !MSELVES W]E ! RESULT ( LOANS4 

,! ONE ?+ IT NEV] SEEM$ TO OCCUR TO ANYONE TO DO WAS TO GET A JOB AT A BANK1 & F9D \T :AT ACTUALLY HAPP5S :5 SOMEONE ASKS TO BORR[ MONEY4 ,9 #bad A ,G]MAN ECONOMI/ NAM$ ,RI*>D ,W]N] DID EXACTLY ?AT1 & DISCOV]$ ?AT1 9 FACT1 LOAN (FIC]S DO NOT *ECK !IR EXI/+ FUNDS1 RES]VES1 OR ANY?+ ELSE4 ,!Y SIMPLY CREATE MONEY \T ( ?9 AIR1 OR1 AS HE PREF]R$ TO PUT IT1 0FAIRY DU/40 

,?AT YE> ALSO APPE>S TO HAVE BE5 :5 ELEM5TS 9 ,BRITA9'S NOTORI\SLY 9DEP5D5T CIVIL S]VICE DECID$ ?AT 5\< WAS 5\<4 ,! QUE/ION ( MONEY CREATION BECAME A CRITICAL BONE ( CONT5TION4 ,! OV]:ELM+ MAJORITY ( EV5 MA9/REAM ECONOMI/S 9 ! ,U,K HAD LONG S9CE REJECT$ AU/]ITY AS C\NT]PRODUCTIVE 7:I*1 PR$ICTABLY1 HAD ALMO/ NO IMPACT ON PUBLIC DEBATE74 ,BUT AT A C]TA9 PO9T1 DEM&+ ?AT ! TE*NOCRATS *>G$ ) RUNN+ ! SY/EM BASE ALL POLICY DECISIONS ON FALSE ASSUMPTIONS AB\T SOME?+ AS ELEM5T>Y AS ! NATURE ( MONEY BECOMES A LITTLE LIKE DEM&+ ?AT >*ITECTS PROCE$ ON ! UND]/&+ ?AT ! SQU>E ROOT ( #dg IS ACTUALLY 84 ,>*ITECTS >E AW>E ?AT BUILD+S W\LD />T FALL+ D[N4 ,PEOPLE W\LD DIE4 

,BE=E LONG1 ! ,BANK ( ,5GL& 7! ,BRITI% EQUIVAL5T ( ! ,F$]AL ,RES]VE1 :OSE ECONOMI/S >E MO/ FREE TO SPEAK !IR M9DS S9CE !Y >E NOT =MALLY P>T ( ! GOV]NM5T7 ROLL$ \T AN ELABORATE (FICIAL REPORT CALL$ 0,MONEY ,CREATION 9 ! ,MOD]N ,ECONOMY10 REPLETE ) VIDEOS & ANIMATIONS1 MAK+ ! SAME PO9T3 EXI/+ ECONOMICS TEXTBOOKS1 & P>TICUL>LY ! REIGN+ MONET>I/ OR?ODOXY1 >E WRONG4 ,! HET]ODOX ECONOMI/S >E RI<T4 ,PRIVATE BANKS CREATE MONEY4 ,C5TRAL BANKS LIKE ! ,BANK ( ,5GL& CREATE MONEY AS WELL1 BUT MONET>I/S >E 5TIRELY WRONG TO 9SI/ ?AT !IR PROP] FUNCTION IS TO CONTROL ! MONEY SUPPLY4 ,9 FACT1 C5TRAL BANKS DO NOT 9 ANY S5SE CONTROL ! MONEY SUPPLY2 !IR MA9 FUNCTION IS TO SET ! 9T]E/ RATE--TO DET]M9E H[ MU* PRIVATE BANKS CAN *>GE = ! MONEY !Y CREATE4 ,ALMO/ ALL PUBLIC DEBATE ON !SE SUBJECTS IS !RE=E BAS$ ON FALSE PREMISES4 ,= EXAMPLE1 IF :AT ! ,BANK ( ,5GL& WAS SAY+ W]E TRUE1 GOV]NM5T BORR[+ DIDN'T DIV]T FUNDS FROM ! PRIVATE SECTOR2 IT CREAT$ 5TIRELY NEW MONEY ?AT HAD NOT EXI/$ BE=E4 

,ONE MI<T HAVE IMAG9$ ?AT SU* AN ADMISSION W\LD CREATE SOME?+ ( A SPLA%1 & 9 C]TA9 RE/RICT$ CIRCLES1 IT DID4 ,C5TRAL BANKS 9 ,NORWAY1 ,SWITZ]L&1 & ,G]MANY QUICKLY PUT \T SIMIL> PAP]S4 ,BACK 9 ! ,U,K1 ! IMM$IATE M$IA RESPONSE WAS SIMPLY SIL5CE4 ,! ,BANK ( ,5GL& REPORT HAS NEV]1 TO MY KN[L$GE1 BE5 SO MU* AS M5TION$ ON ! ,B,B,C OR ANY O!R ,T,V NEWS \TLET4 ,NEWSPAP] COLUMNI/S CONT9U$ TO WRITE AS IF MONET>ISM WAS SELF-EVID5TLY CORRECT4 ,POLITICIANS CONT9U$ TO BE GRILL$ AB\T :]E !Y W\LD F9D ! CA% = SOCIAL PROGRAMS4 ,IT WAS AS IF A K9D ( 5T5TE CORDIALE HAD BE5 E/ABLI%$1 9 :I* ! TE*NOCRATS W\LD BE ALL[$ TO LIVE 9 ONE !ORETICAL UNIV]SE1 :ILE POLITICIANS & NEWS COMM5TATORS W\LD CONT9UE TO EXI/ 9 AN 5TIRELY DIFF]5T ONE4 

,/ILL1 !RE >E SIGNS ?AT ?IS >RANGEM5T IS TEMPOR>Y4 ,5GL&--& ! ,BANK ( ,5GL& 9 P>TICUL>--PRIDES ITSELF ON BE+ A BELLWE!R = GLOBAL ECONOMIC TR5DS4 ,MONET>ISM ITSELF GOT ITS LAUN* 9TO 9TELLECTUAL RESPECTABILITY 9 ! #a#i#gS AFT] HAV+ BE5 EMBRAC$ BY ,BANK ( ,5GL& ECONOMI/S4 ,FROM !RE IT WAS ULTIMATELY ADOPT$ BY ! 9SURG5T ,?AT*] REGIME1 & ONLY AFT] ?AT BY ,RONALD ,REAGAN 9 ! ,UNIT$ ,/ATES1 & IT WAS SUBSEQU5TLY EXPORT$ ALMO/ EV]Y:]E ELSE4 

,IT IS POSSIBLE ?AT A SIMIL> PATT]N IS REPRODUC+ ITSELF TODAY4 ,9 #b#a#e1 A YE> AFT] ! APPE>ANCE ( ! ,BANK ( ,5GL& REPORT1 ! ,LABOR ,P>TY = ! FIR/ TIME ALL[$ OP5 ELECTIONS = ITS LEAD]%IP1 & ! LEFT W+ ( ! P>TY1 UND] ,J]EMY ,CORBYN & N[ %AD[ *ANCELLOR ( ! EX*EQU] ,JOHN ,MC,DONNELL1 TOOK HOLD ( ! RE9S ( P[]4 ,AT ! TIME1 ! ,LABOR LEFT W]E CONSID]$ EV5 MORE M>G9AL EXTREMI/S ?AN WAS ,?AT*]'S W+ ( ! ,CONS]VATIVE ,P>TY 9 #a#i#g#e2 IT IS ALSO 7DESPITE ! M$IA'S CON/ANT EF=TS TO PA9T !M AS UNRECON/RUCT$ #a#i#gS SOCIALI/S7 ! ONLY MAJOR POLITICAL GR\P 9 ! ,U,K ?AT HAS BE5 OP5 TO NEW ECONOMIC IDEAS4 ,:ILE PRETTY MU* ! 5TIRE POLITICAL E/ABLI%M5T HAS BE5 SP5D+ MO/ ( ITS TIME !SE LA/ FEW YE>S SCREAM+ AT ONE ANO!R AB\T ,BREXIT1 ,MC,DONNELL'S (FICE--& ,LABOR Y\? SUPPORT GR\PS--HAVE BE5 HOLD+ WORK%OPS & FLOAT+ POLICY 9ITIATIVES ON EV]Y?+ FROM A F\R-DAY WORKWEEK & UNIV]SAL BASIC 9COME TO A ,GRE5 ,9DU/RIAL ,REVOLUTION & 0,FULLY ,AUTOMAT$ ,LUXURY ,COMMUNISM10 & 9VIT+ HET]ODOX ECONOMI/S TO TAKE P>T 9 POPUL> $UCATION 9ITIATIVES AIM$ AT TRANS=M+ CONCEPTIONS ( H[ ! ECONOMY REALLY WORKS4 ,CORBYNISM HAS FAC$ NE>-HI/RIONIC OPPOSITION FROM VIRTUALLY ALL SECTORS ( ! POLITICAL E/ABLI%M5T1 BUT IT W\LD BE UNWISE TO IGNORE ! POSSIBILITY ?AT SOME?+ HI/ORIC IS AFOOT4 

,ONE SIGN ?AT SOME?+ HI/ORICALLY NEW HAS 9DE$ APPE>$ IS IF S*OL>S BEG9 READ+ ! PA/ 9 A NEW LI<T4 ,ACCORD+LY1 ONE ( ! MO/ SIGNIFICANT BOOKS TO COME \T ( ! ,U,K 9 REC5T YE>S W\LD HAVE TO BE ,ROB]T ,SKIDELSKY'S ,MONEY & ,GOV]NM5T3 ,! ,PA/ & ,FUTURE ( ,ECONOMICS4 ,O/5SIBLY AN ATTEMPT TO ANSW] ! QUE/ION ( :Y MA9/REAM ECONOMICS R5D]$ ITSELF SO USELESS 9 ! YE>S IMM$IATELY BE=E & AFT] ! CRISIS ( #b#h1 IT IS REALLY AN ATTEMPT TO RETELL ! HI/ORY ( ! ECONOMIC DISCIPL9E ?R\< A CONSID]ATION ( ! TWO ?+S--MONEY & GOV]NM5T--?AT MO/ ECONOMI/S LEA/ LIKE TO TALK AB\T4 

,SKIDELSKY IS WELL POSITION$ TO TELL ?IS /ORY4 ,HE EMBODIES A UNIQUELY ,5GLI% TYPE3 ! G5TLE MAV]ICK1 SO FIRMLY 5SCONC$ 9 ! E/ABLI%M5T ?AT IT NEV] OCCURS TO HIM ?AT HE MI<T NOT BE ABLE TO SAY EXACTLY :AT HE ?9KS1 & :OSE VIEWS >E TOL]AT$ BY ! RE/ ( ! E/ABLI%M5T PRECISELY = ?AT REASON4 ,BORN 9 ,MAN*URIA1 TRA9$ AT ,OX=D1 PR(ESSOR ( POLITICAL ECONOMY AT ,W>WICK1 ,SKIDELSKY IS BE/ KN[N AS ! AU?OR ( ! DEF9ITIVE1 ?REE-VOLUME BIOGRAPHY ( ,JOHN ,MAYN>D ,KEYNES1 & HAS = ! LA/ ?REE DECADES SAT 9 ! ,H\SE ( ,LORDS AS ,B>ON ( ,TILTON1 AFFILIAT$ AT DIFF]5T TIMES ) A V>IETY ( POLITICAL P>TIES1 & SOMETIMES NONE AT ALL4 ,DUR+ ! E>LY ,BLAIR YE>S1 HE WAS A ,CONS]VATIVE1 & EV5 S]V$ AS OPPOSITION SPOKESMAN ON ECONOMIC MATT]S 9 ! UPP] *AMB]2 CURR5TLY HE'S A CROSS-B5* 9DEP5D5T1 BROADLY ALIGN$ ) LEFT ,LABOR4 ,9 O!R WORDS1 HE FOLL[S HIS [N FLAG4 ,USUALLY1 IT'S AN 9T]E/+ FLAG4 ,OV] ! LA/ SEV]AL YE>S1 ,SKIDELSKY HAS BE5 TAK+ ADVANTAGE ( HIS POSITION 9 ! WORLD'S MO/ ELITE LEGISLATIVE BODY TO HOLD A S]IES ( HI<-LEVEL SEM9>S ON ! RE=MATION ( ! ECONOMIC DISCIPL9E2 ?IS BOOK IS1 9 A S5SE1 ! FIR/ MAJOR PRODUCT ( !SE 5DEAVORS4 

,:AT IT REVEALS IS AN 5DLESS W> BETWE5 TWO BROAD !ORETICAL P]SPECTIVES 9 :I* ! SAME SIDE ALWAYS SEEMS TO W9--= REASONS ?AT R>ELY HAVE ANY?+ TO DO ) EI!R !ORETICAL SOPHI/ICATION OR GREAT] PR$ICTIVE P[]4 ,! CRUX ( ! >GUM5T ALWAYS SEEMS TO TURN ON ! NATURE ( MONEY4 ,IS MONEY BE/ CONCEIV$ ( AS A PHYSICAL COMMODITY1 A PRECI\S SUB/ANCE US$ TO FACILITATE EX*ANGE1 OR IS IT BETT] TO SEE MONEY PRIM>ILY AS A CR$IT1 A BOOKKEEP+ ME?OD OR CIRCULAT+ ,I,\--9 ANY CASE1 A SOCIAL >RANGEM5T8 ,?IS IS AN >GUM5T ?AT HAS BE5 GO+ ON 9 SOME =M = ?\S&S ( YE>S4 ,:AT WE CALL 0MONEY0 IS ALWAYS A MIXTURE ( BO?1 &1 AS ,I MYSELF NOT$ 9 ,DEBT 7#b#a#a71 ! C5T] ( GRAVITY BETWE5 ! TWO T5DS TO %IFT BACK & =? OV] TIME4 ,9 ! ,MIDDLE ,AGES EV]YDAY TRANSACTIONS ACROSS ,EURASIA W]E TYPICALLY CONDUCT$ BY MEANS ( CR$IT1 & MONEY WAS ASSUM$ TO BE AN AB/RACTION4 ,IT WAS ! RISE ( GLOBAL ,EUROPEAN EMPIRES 9 ! SIXTE5? & SEV5TE5? C5TURIES1 & ! CORRESPOND+ FLOOD ( GOLD & SILV] LOOT$ FROM ! ,AM]ICAS1 ?AT REALLY %IFT$ P]CEPTIONS4 ,HI/ORICALLY1 ! FEEL+ ?AT BULLION ACTUALLY IS MONEY T5DS TO M>K P]IODS ( G5]ALIZ$ VIOL5CE1 MASS SLAV]Y1 & PR$ATORY /&+ >MIES--:I* = MO/ ( ! WORLD WAS PRECISELY H[ ! ,SPANI%1 ,PORTUGUESE1 ,DUT*1 ,FR5*1 & ,BRITI% EMPIRES W]E EXP]I5C$4 ,ONE IMPORTANT !ORETICAL 9NOVATION ?AT !SE NEW BULLION-BAS$ !ORIES ( MONEY ALL[$ WAS1 AS ,SKIDELSKY NOTES1 :AT HAS COME TO BE CALL$ ! QUANTITY !ORY ( MONEY 7USUALLY REF]R$ TO 9 TEXTBOOKS--S9CE ECONOMI/S TAKE 5DLESS DELI<T 9 ABBREVIATIONS--AS ,Q,T,M74 

,! ,Q,T,M >GUM5T WAS FIR/ PUT =W>D BY A ,FR5* LAWY] NAM$ ,JEAN ,BOD91 DUR+ A DEBATE OV] ! CAUSE ( ! %>P1 DE/ABLIZ+ PRICE 9FLATION ?AT IMM$IATELY FOLL[$ ! ,IB]IAN CONQUE/ ( ! ,AM]ICAS4 ,BOD9 >GU$ ?AT ! 9FLATION WAS A SIMPLE MATT] ( SUPPLY & DEM&3 ! 5ORM\S 9FLUX ( GOLD & SILV] FROM ! ,SPANI% COLONIES WAS *EAP5+ ! VALUE ( MONEY 9 ,EUROPE4 ,! BASIC PR9CIPLE W\LD NO D\BT HAVE SEEM$ A MATT] ( COMMON S5SE TO ANYONE ) EXP]I5CE ( COMM]CE AT ! TIME1 BUT IT TURNS \T TO HAVE BE5 BAS$ ON A S]IES ( FALSE ASSUMPTIONS4 ,= ONE ?+1 MO/ ( ! GOLD & SILV] EXTRACT$ FROM ,MEXICO & ,P]U DID NOT 5D UP 9 ,EUROPE AT ALL1 & C]TA9LY WASN'T CO9$ 9TO MONEY4 ,MO/ ( IT WAS TRANSPORT$ DIRECTLY TO ,*9A & ,9DIA 7TO BUY SPICES1 SILKS1 CALICOES1 & O!R 0ORI5TAL LUXURIES071 & 9S(> AS IT HAD 9FLATION>Y EFFECTS BACK HOME1 IT WAS ON ! BASIS ( SPECULATIVE BONDS ( ONE SORT OR ANO!R4 ,?IS ALMO/ ALWAYS TURNS \T TO BE TRUE :5 ,Q,T,M IS APPLI$3 IT SEEMS SELF-EVID5T1 BUT ONLY IF Y\ LEAVE MO/ ( ! CRITICAL FACTORS \T4 

,9 ! CASE ( ! SIXTE5?-C5TURY PRICE 9FLATION1 = 9/ANCE1 ONCE ONE TAKES ACC\NT ( CR$IT1 HO>D+1 & SPECULATION--NOT TO M5TION 9CREAS$ RATES ( ECONOMIC ACTIVITY1 9VE/M5T 9 NEW TE*NOLOGY1 & WAGE LEVELS 7:I*1 9 TURN1 HAVE A LOT TO DO ) ! RELATIVE P[] ( WORK]S & EMPLOY]S1 CR$ITORS & DEBTORS7--IT BECOMES IMPOSSIBLE TO SAY = C]TA9 :I* IS ! DECID+ FACTOR3 :E!R ! MONEY SUPPLY DRIVES PRICES1 OR PRICES DRIVE ! MONEY SUPPLY4 ,TE*NICALLY1 ?IS COMES D[N TO A *OICE BETWE5 :AT >E CALL$ EXOG5\S & 5DOG5\S !ORIES ( MONEY4 ,%\LD MONEY BE TREAT$ AS AN \TSIDE FACTOR1 LIKE ALL ?OSE ,SPANI% DUBLOONS SUPPOS$LY SWEEP+ 9TO ,ANTW]P1 ,DUBL91 & ,G5OA 9 ! DAYS ( ,PHILIP ,I,I1 OR %\LD IT BE IMAG9$ PRIM>ILY AS A PRODUCT ( ECONOMIC ACTIVITY ITSELF1 M9$1 M9T$1 & PUT 9TO CIRCULATION1 OR MORE (T51 CREAT$ AS CR$IT 9/RUM5TS SU* AS LOANS1 9 ORD] TO MEET A DEM&--:I* W\LD1 ( C\RSE1 MEAN ?AT ! ROOTS ( 9FLATION LIE ELSE:]E8 

,TO PUT IT BLUNTLY3 ,Q,T,M IS OBVI\SLY WRONG4 ,D\BL+ ! AM\NT ( GOLD 9 A C\NTRY WILL HAVE NO EFFECT ON ! PRICE ( *EESE IF Y\ GIVE ALL ! GOLD TO RI* PEOPLE & !Y JU/ BURY IT 9 !IR Y>DS1 OR USE IT TO MAKE GOLD-PLAT$ SUBM>9ES 7?IS IS1 9CID5TALLY1 :Y QUANTITATIVE EAS+1 ! /RATEGY ( BUY+ LONG-T]M GOV]NM5T BONDS TO PUT MONEY 9TO CIRCULATION1 DID NOT WORK EI!R74 ,:AT ACTUALLY MATT]S IS SP5D+4 

,NONE!LESS1 FROM ,BOD9'S TIME TO ! PRES5T1 ALMO/ EV]Y TIME !RE WAS A MAJOR POLICY DEBATE1 ! ,Q,T,M ADVOCATES WON4 ,9 ,5GL&1 ! PATT]N WAS SET 9 #a#f#i#f1 JU/ AFT] ! CREATION ( ! ,BANK ( ,5GL&1 ) AN >GUM5T OV] W>TIME 9FLATION BETWE5 ,TREASURY ,SECRET>Y ,WILLIAM ,L[NDES1 ,SIR ,ISAAC ,NEWTON 7!N W>D5 ( ! M9T71 & ! PHILOSOPH] ,JOHN ,LOCKE4 ,NEWTON HAD AGRE$ ) ! ,TREASURY ?AT SILV] CO9S HAD TO BE (FICIALLY DEVALU$ TO PREV5T A DEFLATION>Y COLLAPSE2 ,LOCKE TOOK AN EXTREME MONET>I/ POSITION1 >GU+ ?AT ! GOV]NM5T %\LD BE LIMIT$ TO GU>ANTEE+ ! VALUE ( PROP]TY 79CLUD+ CO9S7 & ?AT T9K]+ W\LD CONFUSE 9VE/ORS & DEFRAUD CR$ITORS4 ,LOCKE WON4 ,! RESULT WAS DEFLATION>Y COLLAPSE4 ,A %>P TI<T5+ ( ! MONEY SUPPLY CREAT$ AN ABRUPT ECONOMIC CONTRACTION ?AT ?REW HUNDR$S ( ?\S&S \T ( WORK & CREAT$ MASS P5URY1 RIOTS1 & HUNG]4 ,! GOV]NM5T QUICKLY MOV$ TO MOD]ATE ! POLICY 7FIR/ BY ALL[+ BANKS TO MONETIZE GOV]NM5T W> DEBTS 9 ! =M ( BANK NOTES1 & EV5TUALLY BY MOV+ (F ! SILV] /&>D 5TIRELY71 BUT 9 ITS (FICIAL RHETORIC1 ,LOCKE'S SMALL-GOV]NM5T1 PRO-CR$ITOR1 H>D-MONEY IDEOLOGY BECAME ! GR\NDS ( ALL FUR!R POLITICAL DEBATE4 

,ACCORD+ TO ,SKIDELSKY1 ! PATT]N WAS TO REPEAT ITSELF AGA9 & AGA91 9 #a#g#i#g1 ! #a#h#dS1 ! #a#h#iS1 &1 ULTIMATELY1 ! LATE #a#i#gS & E>LY #a#i#hS1 ) ,?AT*] & ,REAGAN'S 79 EA* CASE BRIEF7 ADOPTION ( MONET>ISM4 ,ALWAYS WE SEE ! SAME SEQU5CE ( EV5TS3 

,! GOV]NM5T ADOPTS H>D-MONEY POLICIES AS A MATT] ( PR9CIPLE4 

,DISA/] 5SUES4 

,! GOV]NM5T QUIETLY AB&ONS H>D-MONEY POLICIES4 

,! ECONOMY RECOV]S4 

,H>D-MONEY PHILOSOPHY NONE!LESS BECOMES1 OR IS RE9=C$ AS1 SIMPLE UNIV]SAL COMMON S5SE4 

,H[ WAS IT POSSIBLE TO JU/IFY SU* A REM>KABLE /R+ ( FAILURES8 ,H]E A LOT ( ! BLAME1 ACCORD+ TO ,SKIDELSKY1 CAN BE LAID AT ! FEET ( ! ,SCOTTI% PHILOSOPH] ,DAVID ,HUME4 ,AN E>LY ADVOCATE ( ,Q,T,M1 ,HUME WAS ALSO ! FIR/ TO 9TRODUCE ! NOTION ?AT %ORT-T]M %OCKS--SU* AS ,LOCKE PRODUC$--W\LD CREATE LONG-T]M B5EFITS IF !Y HAD ! EFFECT ( UNLEA%+ ! SELF-REGULAT+ P[]S ( ! M>KET3 

,EV] S9CE ,HUME1 ECONOMI/S HAVE DI/+UI%$ BETWE5 ! %ORT-RUN & ! LONG-RUN EFFECTS ( ECONOMIC *ANGE1 9CLUD+ ! EFFECTS ( POLICY 9T]V5TIONS4 ,! DI/9CTION HAS S]V$ TO PROTECT ! !ORY ( EQUILIBRIUM1 BY 5ABL+ IT TO BE /AT$ 9 A =M :I* TOOK SOME ACC\NT ( REALITY4 ,9 ECONOMICS1 ! %ORT-RUN N[ TYPICALLY /&S = ! P]IOD DUR+ :I* A M>KET 7OR AN ECONOMY ( M>KETS7 TEMPOR>ILY DEVIATES FROM ITS LONG-T]M EQUILIBRIUM POSITION UND] ! IMPACT ( SOME 0%OCK10 LIKE A P5DULUM TEMPOR>ILY DISLODG$ FROM A POSITION ( RE/4 ,?IS WAY ( ?9K+ SUGGE/S ?AT GOV]NM5TS %\LD LEAVE IT TO M>KETS TO DISCOV] !IR NATURAL EQUILIBRIUM POSITIONS4 ,GOV]NM5T 9T]V5TIONS TO 0CORRECT0 DEVIATIONS WILL ONLY ADD EXTRA LAY]S ( DELUSION TO ! ORIG9AL ONE4 

,!RE IS A LOGICAL FLAW TO ANY SU* !ORY3 !RE'S NO POSSIBLE WAY TO DISPROVE IT4 ,! PREMISE ?AT M>KETS WILL ALWAYS RI<T !MSELVES 9 ! 5D CAN ONLY BE TE/$ IF ONE HAS A COMMONLY AGRE$ DEF9ITION ( :5 ! 05D0 IS2 BUT = ECONOMI/S1 ?AT DEF9ITION TURNS \T TO BE 0H[EV] LONG IT TAKES TO REA* A PO9T :]E ,I CAN SAY ! ECONOMY HAS RETURN$ TO EQUILIBRIUM40 7,9 ! SAME WAY1 /ATEM5TS LIKE 0! B>B>IANS ALWAYS W9 9 ! 5D0 OR 0TRU? ALWAYS PREVAILS0 CANNOT BE PROV$ WRONG1 S9CE 9 PRACTICE !Y JU/ MEAN 0:5EV] B>B>IANS W91 OR TRU? PREVAILS1 ,I %ALL DECL>E ! /ORY OV]407 

,AT ?IS PO9T1 ALL ! PIECES W]E 9 PLACE3 TI<T-MONEY POLICIES 7:I* B5EFIT$ CR$ITORS & ! WEAL?Y7 C\LD BE JU/IFI$ AS 0H>% M$IC9E0 TO CLE> UP PRICE-SIGNALS SO ! M>KET C\LD RETURN TO A HEAL?Y /ATE ( LONG-RUN BALANCE4 ,9 DESCRIB+ H[ ALL ?IS CAME AB\T1 ,SKIDELSKY IS PROVID+ US ) A WOR?Y EXT5SION ( A HI/ORY ,K>L ,POLANYI FIR/ BEGAN TO MAP \T 9 ! #a#i#dS3 ! /ORY ( H[ SUPPOS$LY SELF-REGULAT+ NATIONAL M>KETS W]E ! PRODUCT ( C>EFUL SOCIAL 5G9E]+4 ,P>T ( ?AT 9VOLV$ CREAT+ GOV]NM5T POLICIES SELF-CONSCI\SLY DESIGN$ TO 9SPIRE RES5TM5T ( 0BIG GOV]NM5T40 ,SKIDELSKY WRITES3 

,A CRUCIAL 9NOVATION WAS 9COME TAX1 FIR/ LEVI$ 9 #a#h#a#d1 & R5EW$ BY .<,PRIME ,M9I/] ,ROB]T.> ,PEEL 9 #a#h#d#b4 ,BY #a#i#a#a-#a#d1 ?IS HAD BECOME ! PR9CIPAL S\RCE ( GOV]NM5T REV5UE4 ,9COME TAX HAD ! D\BLE B5EFIT ( GIV+ ! ,BRITI% /ATE A SECURE REV5UE BASE1 & ALIGN+ VOT]S' 9T]E/S ) *EAP GOV]NM5T1 S9CE ONLY DIRECT TAXPAY]S HAD ! VOTE4444 0,FISCAL PROBITY10 UND] ,GLAD/ONE1 0BECAME ! NEW MORALITY40 

,9 FACT1 !RE'S ABSOLUTELY NO REASON A MOD]N /ATE %\LD FUND ITSELF PRIM>ILY BY APPROPRIAT+ A PROPORTION ( EA* CITIZ5'S E>N+S4 ,!RE >E PL5TY ( O!R WAYS TO GO AB\T IT4 ,MANY--SU* AS L&1 WEAL?1 COMM]CIAL1 OR CONSUM] TAXES 7ANY ( :I* CAN BE MADE MORE OR LESS PROGRESSIVE7-->E CONSID]ABLY MORE EFFICI5T1 S9CE CREAT+ A BUREAUCRATIC APP>ATUS CAPABLE ( MONITOR+ CITIZ5S' P]SONAL AFFAIRS TO ! DEGREE REQUIR$ BY AN 9COME TAX SY/EM IS ITSELF 5ORM\SLY EXP5SIVE4 ,BUT ?IS MISSES ! REAL PO9T3 9COME TAX IS SUPPOS$ TO BE 9TRUSIVE & EXASP]AT+4 ,IT IS MEANT TO FEEL AT LEA/ A LITTLE BIT UNFAIR4 ,LIKE SO MU* ( CLASSICAL LIB]ALISM 7& CONTEMPOR>Y NEOLIB]ALISM71 IT IS AN +5I\S POLITICAL SLEI<T ( H&--AN EXPANSION ( ! BUREAUCRATIC /ATE ?AT ALSO ALL[S ITS LEAD]S TO PRET5D TO ADVOCATE = SMALL GOV]NM5T4 

,! ONE MAJOR EXCEPTION TO ?IS PATT]N WAS ! MID-TW5TIE? C5TURY1 :AT HAS COME TO BE REMEMB]$ AS ! ,KEYNESIAN AGE4 ,IT WAS A P]IOD 9 :I* ?OSE RUNN+ CAPITALI/ DEMOCRACIES1 SPOOK$ BY ! ,RUSSIAN ,REVOLUTION & ! PROSPECT ( ! MASS REBELLION ( !IR [N WORK+ CLASSES1 ALL[$ UNPREC$5T$ LEVELS ( R$I/RIBUTION--:I*1 9 TURN1 L$ TO ! MO/ G5]ALIZ$ MAT]IAL PROSP]ITY 9 HUMAN HI/ORY4 ,! /ORY ( ! ,KEYNESIAN REVOLUTION ( ! #a#i#cS1 & ! NEOCLASSICAL C\NT]REVOLUTION ( ! #a#i#gS1 HAS BE5 TOLD 9NUM]ABLE TIMES1 BUT ,SKIDELSKY GIVES ! READ] A FRE% S5SE ( ! UND]LY+ CONFLICT4 

,KEYNES HIMSELF WAS /AUN*LY ANTI-,COMMUNI/1 BUT L>GELY BECAUSE HE FELT ?AT CAPITALISM WAS MORE LIKELY TO DRIVE RAPID TE*NOLOGICAL ADVANCE ?AT W\LD L>GELY ELIM9ATE ! NE$ = MAT]IAL LABOR4 ,HE WI%$ = FULL EMPLOYM5T NOT BECAUSE HE ?\<T WORK WAS GOOD1 BUT BECAUSE HE ULTIMATELY WI%$ TO DO AWAY ) WORK1 5VISION+ A SOCIETY 9 :I* TE*NOLOGY W\LD R5D] HUMAN LABOR OBSOLETE4 ,9 O!R WORDS1 HE ASSUM$ ?AT ! GR\ND WAS ALWAYS %IFT+ UND] ! ANALY/S' FEET2 ! OBJECT ( ANY SOCIAL SCI5CE WAS 9H]5TLY UN/ABLE4 ,MAX ,WEB]1 = SIMIL> REASONS1 >GU$ ?AT IT W\LD NEV] BE POSSIBLE = SOCIAL SCI5TI/S TO COME UP ) ANY?+ REMOTELY LIKE ! LAWS ( PHYSICS1 BECAUSE BY ! TIME !Y HAD COME ANY:]E NE> TO GA!R+ 5\< 9=MATION1 SOCIETY ITSELF1 & :AT ANALY/S FELT WAS IMPORTANT TO KN[ AB\T IT1 W\LD HAVE *ANG$ SO MU* ?AT ! 9=MATION W\LD BE IRRELEVANT4 ,KEYNES'S OPPON5TS1 ON ! O!R H&1 W]E DET]M9$ TO ROOT !IR >GUM5TS 9 JU/ SU* UNIV]SAL PR9CIPLES4 

,IT'S DIFFICULT = \TSID]S TO SEE :AT WAS REALLY AT /AKE H]E1 BECAUSE ! >GUM5T HAS COME TO BE REC\NT$ AS A TE*NICAL DISPUTE BETWE5 ! ROLES ( MICRO- & MACROECONOMICS4 ,KEYNESIANS 9SI/$ ?AT ! =M] IS APPROPRIATE TO /UDY+ ! BEHAVIOR ( 9DIVIDUAL H\SEHOLDS OR FIRMS1 TRY+ TO OPTIMIZE !IR ADVANTAGE 9 ! M>KETPLACE1 BUT ?AT AS SOON AS ONE BEG9S TO LOOK AT NATIONAL ECONOMIES1 ONE IS MOV+ TO AN 5TIRELY DIFF]5T LEVEL ( COMPLEXITY1 :]E DIFF]5T SORTS ( LAWS APPLY4 ,JU/ AS IT IS IMPOSSIBLE TO UND]/& ! MAT+ HABITS ( AN A>DV>K BY ANALYZ+ ALL ! *EMICAL REACTIONS 9 !IR CELLS1 SO PATT]NS ( TRADE1 9VE/M5T1 OR ! FLUCTUATIONS ( 9T]E/ OR EMPLOYM5T RATES W]E NOT SIMPLY ! AGGREGATE ( ALL ! MICROTRANSACTIONS ?AT SEEM$ TO MAKE !M UP4 ,! PATT]NS HAD1 AS PHILOSOPH]S ( SCI5CE W\LD PUT IT1 0EM]G5T PROP]TIES40 ,OBVI\SLY1 IT WAS NECESS>Y TO UND]/& ! MICRO LEVEL 7JU/ AS IT WAS NECESS>Y TO UND]/& ! *EMICALS ?AT MADE UP ! A>DV>K7 TO HAVE ANY *ANCE ( UND]/& ! MACRO1 BUT ?AT WAS NOT1 9 ITSELF1 5\<4 

,! C\NT]REVOLUTION>IES1 />T+ ) ,KEYNES'S OLD RIVAL ,FRI$RI* ,HAYEK AT ! ,L,S,E & ! V>I\S LUM9>IES :O JO9$ HIM 9 ! ,MONT ,PEL]9 ,SOCIETY1 TOOK AIM DIRECTLY AT ?IS NOTION ?AT NATIONAL ECONOMIES >E ANY?+ MORE ?AN ! SUM ( !IR P>TS4 ,POLITICALLY1 ,SKIDELSKY NOTES1 ?IS WAS DUE TO A HO/ILITY TO ! V]Y IDEA ( /ATECRAFT 7&1 9 A BROAD] S5SE1 ( ANY COLLECTIVE GOOD74 ,NATIONAL ECONOMIES C\LD 9DE$ BE R$UC$ TO ! AGGREGATE EFFECT ( MILLIONS ( 9DIVIDUAL DECISIONS1 &1 !RE=E1 EV]Y ELEM5T ( MACROECONOMICS HAD TO BE SY/EMATICALLY 0MICRO-F\ND$40 

,ONE REASON ?IS WAS SU* A RADICAL POSITION WAS ?AT IT WAS TAK5 AT EXACTLY ! SAME MOM5T ?AT MICROECONOMICS ITSELF WAS COMPLET+ A PR(\ND TRANS=MATION--ONE ?AT HAD BEGUN ) ! M>G9AL REVOLUTION ( ! LATE N9ETE5? C5TURY--FROM A TE*NIQUE = UND]/&+ H[ ?OSE OP]AT+ ON ! M>KET MAKE DECISIONS TO A G5]AL PHILOSOPHY ( HUMAN LIFE4 ,IT WAS ABLE TO DO SO1 REM>KABLY 5\<1 BY PROPOS+ A S]IES ( ASSUMPTIONS ?AT EV5 ECONOMI/S !MSELVES W]E HAPPY TO ADMIT W]E NOT REALLY TRUE3 LET US POSIT1 !Y SAID1 PURELY RATIONAL ACTORS MOTIVAT$ EXCLUSIVELY BY SELF-9T]E/1 :O KN[ EXACTLY :AT !Y WANT & NEV] *ANGE !IR M9DS1 & HAVE COMPLETE ACCESS TO ALL RELEVANT PRIC+ 9=MATION4 ,?IS ALL[$ !M TO MAKE PRECISE1 PR$ICTIVE EQUATIONS ( EXACTLY H[ 9DIVIDUALS %\LD BE EXPECT$ TO ACT4 

,SURELY !RE'S NO?+ WRONG ) CREAT+ SIMPLIFI$ MODELS4 ,>GUABLY1 ?IS IS H[ ANY SCI5CE ( HUMAN AFFAIRS HAS TO PROCE$4 ,BUT AN EMPIRICAL SCI5CE !N GOES ON TO TE/ ?OSE MODELS AGA9/ :AT PEOPLE ACTUALLY DO1 & ADJU/ !M ACCORD+LY4 ,?IS IS PRECISELY :AT ECONOMI/S DID NOT DO4 ,9/EAD1 !Y DISCOV]$ ?AT1 IF ONE 5CAS$ ?OSE MODELS 9 MA!MATICAL =MULAS COMPLETELY IMP5ETRABLE TO ! NON9ITIATE1 IT W\LD BE POSSIBLE TO CREATE A UNIV]SE 9 :I* ?OSE PREMISES C\LD NEV] BE REFUT$4 70,ALL ACTORS >E 5GAG$ 9 ! MAXIMIZATION ( UTILITY4 ,:AT IS UTILITY8 ,:ATEV] IT IS ?AT AN ACTOR APPE>S TO BE MAXIMIZ+407 ,! MA!MATICAL EQUATIONS ALL[$ ECONOMI/S TO PLAUSIBLY CLAIM !IRS WAS ! ONLY BRAN* ( SOCIAL !ORY ?AT HAD ADVANC$ TO ANY?+ LIKE A PR$ICTIVE SCI5CE 7EV5 IF MO/ ( !IR SUCCESSFUL PR$ICTIONS W]E ( ! BEHAVIOR ( PEOPLE :O HAD !MSELVES BE5 TRA9$ 9 ECONOMIC !ORY74 

,?IS ALL[$ ,HOMO ECONOMICUS TO 9VADE ! RE/ ( ! ACADEMY1 SO ?AT BY ! #a#i#eS & #a#i#fS ALMO/ EV]Y S*OL>LY DISCIPL9E 9 ! BUS9ESS ( PREP>+ Y\NG PEOPLE = POSITIONS ( P[] 7POLITICAL SCI5CE1 9T]NATIONAL RELATIONS1 ETC47 HAD ADOPT$ SOME V>IANT ( 0RATIONAL *OICE !ORY0 CULL$1 ULTIMATELY1 FROM MICROECONOMICS4 ,BY ! #a#i#hS & #a#i#iS1 IT HAD REA*$ A PO9T :]E EV5 ! HEADS ( >T F\NDATIONS OR *>ITABLE ORGANIZATIONS W\LD NOT BE CONSID]$ FULLY QUALIFI$ IF !Y W]E NOT AT LEA/ BROADLY FAMILI> ) A 0SCI5CE0 ( HUMAN AFFAIRS ?AT />T$ FROM ! ASSUMPTION ?AT HUMANS W]E FUNDAM5TALLY SELFI% & GRE$Y4 

,!SE1 !N1 W]E ! 0MICR(\NDATIONS0 TO :I* ! NEOCLASSICAL RE=M]S DEM&$ MACROECONOMICS BE RETURN$4 ,H]E !Y W]E ABLE TO TAKE ADVANTAGE ( C]TA9 UND5IABLE WEAKNESSES 9 ,KEYNESIAN =MULATIONS1 ABOVE ALL ITS 9ABILITY TO EXPLA9 #a#i#gS /AGFLATION1 TO BRU% AWAY ! REMA9+ ,KEYNESIAN SUP]/RUCTURE & RETURN TO ! SAME H>D-MONEY1 SMALL-GOV]NM5T POLICIES ?AT HAD BE5 DOM9ANT 9 ! N9ETE5? C5TURY4 ,! FAMILI> PATT]N 5SU$4 ,MONET>ISM DIDN'T WORK2 9 ! ,U,K & !N ! ,U,S1 SU* POLICIES W]E QUICKLY AB&ON$4 ,BUT IDEOLOGICALLY1 ! 9T]V5TION WAS SO EFFECTIVE ?AT EV5 :5 0NEW ,KEYNESIANS0 LIKE ,JOSEPH ,/IGLITZ OR ,PAUL ,KRUGMAN RETURN$ TO DOM9ATE ! >GUM5T AB\T MACROECONOMICS1 !Y /ILL FELT OBLIG$ TO MA9TA9 ! NEW MICR(\NDATIONS4 

,! PROBLEM1 AS ,SKIDELSKY EMPHASIZES1 IS ?AT IF Y\R 9ITIAL ASSUMPTIONS >E ABSURD1 MULTIPLY+ !M A ?\S&FOLD WILL H>DLY MAKE !M LESS SO4 ,OR1 AS HE PUTS IT1 RA!R LESS G5TLY1 0LUNATIC PREMISES LEAD TO MAD CONCLUSIONS03 

,! EFFICI5T M>KET HYPO!SIS 7,E,M,H71 MADE POPUL> BY ,EUG5E ,FAMA444IS ! APPLICATION ( RATIONAL EXPECTATIONS TO F9ANCIAL M>KETS4 ,! RATIONAL EXPECTATIONS HYPO!SIS 7,R,E,H7 SAYS ?AT AG5TS OPTIMALLY UTILIZE ALL AVAILABLE 9=MATION AB\T ! ECONOMY & POLICY 9/ANTLY TO ADJU/ !IR EXPECTATIONS4444 

,?US1 9 ! WORDS ( ,FAMA14440,9 AN EFFICI5T M>KET1 COMPETITION AMONG ! MANY 9TELLIG5T P>TICIPANTS LEADS TO A SITUATION :]E444! ACTUAL PRICE ( A SECURITY WILL BE A GOOD E/IMATE ( ITS 9TR9SIC VALUE40 .<,SKIDELSKY'S ITALICS.> 

,9 O!R WORDS1 WE W]E OBLIG$ TO PRET5D ?AT M>KETS C\LD NOT1 BY DEF9ITION1 BE WRONG--IF 9 ! #a#i#hS ! L& ON :I* ! ,IMP]IAL COMP\ND 9 ,TOKYO WAS BUILT1 = EXAMPLE1 WAS VALU$ HI<] ?AN ?AT ( ALL ! L& 9 ,NEW ,YORK ,CITY1 !N ?AT W\LD HAVE TO BE BECAUSE ?AT WAS :AT IT WAS ACTUALLY WOR?4 ,IF !RE >E DEVIATIONS1 !Y >E PURELY R&OM1 0/O*A/IC0 & !RE=E UNPR$ICTABLE1 TEMPOR>Y1 &1 ULTIMATELY1 9SIGNIFICANT4 ,9 ANY CASE1 RATIONAL ACTORS WILL QUICKLY /EP 9 TO SWEEP UP ANY UND]VALU$ /OCKS4 ,SKIDELSKY DRYLY REM>KS3 

,!RE IS A P>ADOX H]E4 ,ON ! ONE H&1 ! !ORY SAYS ?AT !RE IS NO PO9T 9 TRY+ TO PR(IT FROM SPECULATION1 BECAUSE %>ES >E ALWAYS CORRECTLY PRIC$ & !IR MOVEM5TS CANNOT BE PR$ICT$4 ,BUT ON ! O!R H&1 IF 9VE/ORS DID NOT TRY TO PR(IT1 ! M>KET W\LD NOT BE EFFICI5T BECAUSE !RE W\LD BE NO SELF-CORRECT+ ME*ANISM4444 

,SECONDLY1 IF %>ES >E ALWAYS CORRECTLY PRIC$1 BUBBLES & CRISES CANNOT BE G5]AT$ BY ! M>KET4444 

,?IS ATTITUDE LEA*$ 9TO POLICY3 0GOV]NM5T (FICIALS1 />T+ ) .<,F$]AL ,RES]VE ,*AIRMAN.> ,ALAN ,GRE5SPAN1 W]E UNWILL+ TO BUR/ ! BUBBLE PRECISELY BECAUSE !Y W]E UNWILL+ TO EV5 JUDGE ?AT IT WAS A BUBBLE40 ,! ,E,M,H MADE ! ID5TIFICATION ( BUBBLES IMPOSSIBLE BECAUSE IT RUL$ !M \T A PRIORI4 

,IF !RE IS AN ANSW] TO ! QUE5'S FAM\S QUE/ION ( :Y NO ONE SAW ! CRA% COM+1 ?IS W\LD BE IT4 

,AT ?IS PO9T1 WE HAVE COME FULL CIRCLE4 ,AFT] SU* A CATA/ROPHIC EMB>RASSM5T1 OR?ODOX ECONOMI/S FELL BACK ON !IR /RONG SUIT--ACADEMIC POLITICS & 9/ITUTIONAL P[]4 ,9 ! ,U,K1 ONE ( ! FIR/ MOVES ( ! NEW ,CONS]VATIVE-,LIB]AL ,DEMOCRATIC ,COALITION 9 #ba WAS TO RE=M ! HI<] $UCATION SY/EM BY TRIPL+ TUITION & 9/ITUT+ AN ,AM]ICAN-/YLE REGIME ( /UD5T LOANS4 ,COMMON S5SE MI<T HAVE SUGGE/$ ?AT IF ! $UCATION SY/EM WAS P]=M+ SUCCESSFULLY 7= ALL ITS FOIBLES1 ! ,BRITI% UNIV]SITY SY/EM WAS CONSID]$ ONE ( ! BE/ 9 ! WORLD71 :ILE ! F9ANCIAL SY/EM WAS OP]AT+ SO BADLY ?AT IT HAD NE>LY DE/ROY$ ! GLOBAL ECONOMY1 ! S5SIBLE ?+ MI<T BE TO RE=M ! F9ANCIAL SY/EM TO BE A BIT MORE LIKE ! $UCATIONAL SY/EM1 RA!R ?AN ! O!R WAY >\ND4 ,AN AGGRESSIVE EF=T TO DO ! OPPOSITE C\LD ONLY BE AN IDEOLOGICAL MOVE4 ,IT WAS A FULL-ON ASSAULT ON ! V]Y IDEA ?AT KN[L$GE C\LD BE ANY?+ O!R ?AN AN ECONOMIC GOOD4 

,SIMIL> MOVES W]E MADE TO SOLIDIFY CONTROL OV] ! 9/ITUTIONAL /RUCTURE4 ,! ,B,B,C1 A ONCE PR\DLY 9DEP5D5T BODY1 UND] ! ,TORIES HAS 9CREAS+LY COME TO RESEMBLE A /ATE BROADCA/+ NETWORK1 !IR POLITICAL COMM5TATORS (T5 RECIT+ ALMO/ V]BATIM ! LATE/ TALK+ PO9TS ( ! RUL+ P>TY--:I*1 AT LEA/ ECONOMICALLY1 W]E PREMIS$ ON ! V]Y !ORIES ?AT HAD JU/ BE5 DISCR$IT$4 ,POLITICAL DEBATE SIMPLY ASSUM$ ?AT ! USUAL 0H>% M$IC9E0 & ,GLAD/ONIAN 0FISCAL PROBITY0 W]E ! ONLY SOLUTION2 AT ! SAME TIME1 ! ,BANK ( ,5GL& BEGAN PR9T+ MONEY LIKE MAD &1 EFFECTIVELY1 H&+ IT \T TO ! ONE P]C5T 9 AN UNSUCCESSFUL ATTEMPT TO KICK-/>T 9FLATION4 ,! PRACTICAL RESULTS W]E1 TO PUT IT MILDLY1 UN9SPIR+4 ,EV5 AT ! HEI<T ( ! EV5TUAL RECOV]Y1 9 ! FIF?-RI*E/ C\NTRY 9 ! WORLD1 SOME?+ LIKE ONE ,BRITI% CITIZ5 9 TWELVE EXP]I5C$ HUNG]1 UP TO & 9CLUD+ GO+ 5TIRE DAYS )\T FOOD4 ,IF AN 0ECONOMY0 IS TO BE DEF9$ AS ! MEANS BY :I* A HUMAN POPULATION PROVIDES ITSELF ) ITS MAT]IAL NE$S1 ! ,BRITI% ECONOMY IS 9CREAS+LY DYSFUNCTIONAL4 ,FR5ETIC EF=TS ON ! P>T ( ! ,BRITI% POLITICAL CLASS TO *ANGE ! SUBJECT 7,BREXIT7 CAN H>DLY GO ON =EV]4 ,EV5TUALLY1 REAL ISSUES WILL HAVE TO BE ADDRESS$4 

,ECONOMIC !ORY AS IT EXI/S 9CREAS+LY RESEMBLES A %$ FULL ( BROK5 TOOLS4 ,?IS IS NOT TO SAY !RE >E NO USEFUL 9SI<TS H]E1 BUT FUNDAM5TALLY ! EXI/+ DISCIPL9E IS DESIGN$ TO SOLVE ANO!R C5TURY'S PROBLEMS4 ,! PROBLEM ( H[ TO DET]M9E ! OPTIMAL DI/RIBUTION ( WORK & RES\RCES TO CREATE HI< LEVELS ( ECONOMIC GR[? IS SIMPLY NOT ! SAME PROBLEM WE >E N[ FAC+3 I4E41 H[ TO DEAL ) 9CREAS+ TE*NOLOGICAL PRODUCTIVITY1 DECREAS+ REAL DEM& = LABOR1 & ! EFFECTIVE MANAGEM5T ( C>E WORK1 )\T ALSO DE/ROY+ ! ,E>?4 ,?IS DEM&S A DIFF]5T SCI5CE4 ,! 0MICR(\NDATIONS0 ( CURR5T ECONOMICS >E PRECISELY :AT IS /&+ 9 ! WAY ( ?IS4 ,ANY NEW1 VIABLE SCI5CE WILL EI!R HAVE TO DRAW ON ! ACCUMULAT$ KN[L$GE ( FEM9ISM1 BEHAVIORAL ECONOMICS1 PSY*OLOGY1 & EV5 AN?ROPOLOGY TO COME UP ) !ORIES BAS$ ON H[ PEOPLE ACTUALLY BEHAVE1 OR ONCE AGA9 EMBRACE ! NOTION ( EM]G5T LEVELS ( COMPLEXITY--OR1 MO/ LIKELY1 BO?4 

,9TELLECTUALLY1 ?IS WON'T BE EASY4 ,POLITICALLY1 IT WILL BE EV5 MORE DIFFICULT4 ,BREAK+ ?R\< NEOCLASSICAL ECONOMICS' LOCK ON MAJOR 9/ITUTIONS1 & ITS NE>-!OLOGICAL HOLD OV] ! M$IA--NOT TO M5TION ALL ! SUBTLE WAYS IT HAS COME TO DEF9E \R CONCEPTIONS ( HUMAN MOTIVATIONS & ! HORIZONS ( HUMAN POSSIBILITY--IS A DAUNT+ PROSPECT4 ,PRESUMABLY1 SOME K9D ( %OCK W\LD BE REQUIR$4 ,:AT MI<T IT TAKE8 ,ANO!R #b#h-/YLE COLLAPSE8 ,SOME RADICAL POLITICAL %IFT 9 A MAJOR WORLD GOV]NM5T8 ,A GLOBAL Y\? REBELLION8 ,H[EV] IT WILL COME AB\T1 BOOKS LIKE ?IS--& QUITE POSSIBLY ?IS BOOK--WILL PLAY A CRUCIAL P>T4 

,FROM 3 ,!,AN>*I/,LIBR>Y4ORG4 

,*RONOLOGY 3 
,JANU>Y #f1 #bba 3 ,AGA9/ ,ECONOMICS -- ,ADD$4 
,JANU>Y #d1 #bbb 3 ,AGA9/ ,ECONOMICS -- ,UPDAT$4 

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