Money, Banking, and the Business Cycle: Volume One Integrating Theory and Practice PDF
Preview Money, Banking, and the Business Cycle: Volume One Integrating Theory and Practice
Money, Banking, and the Business Cycle Also by Brian P. Simpson Money, Banking, and the Business Cycle, Volume 2: Remedies and Alternative Theories Markets Don’t Fail! Money, Banking, and the Business Cycle Integrating Theory and Practice Volume One Brian P. Simpson MONEY, BANKING, AND THE BUSINESS CYCLE Copyright © Brian P. Simpson, 2014. Softcover reprint of the hardcover 1st edition 20(cid:18)(cid:21) All rights reserved. First published in 2014 by PALGRAVE MACMILLAN® in the United States— a division of St. Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN: 978–1–137–33531–9 Library of Congress Cataloging-in-Publication Data Simpson, Brian P., 1966– Money, banking, and the business cycle : integrating theory and practice / Brian P. Simpson. volumes ; cm Includes bibliographical references and index. ISBN 978–1–137–33531–9 (hardback) 1. Business cycles. 2. Monetary policy. 3. Banks and banking. I. Title. HB3714.S56 2014 338.5(cid:25)42—dc23 2013044047 A catalogue record of the book is available from the British Library. Design by Newgen Knowledge Works (P) Ltd., Chennai, India. First edition: April 2014 10 9 8 7 6 5 4 3 2 1 ISBN (cid:26)(cid:24)(cid:25)(cid:14)(cid:18)(cid:14)(cid:20)(cid:21)(cid:26)(cid:14)(cid:21)(cid:23)(cid:20)(cid:17)(cid:21)(cid:14)(cid:23) ISBN (cid:26)(cid:24)(cid:25)(cid:14)(cid:18)(cid:14)(cid:18)(cid:20)(cid:24)(cid:14)(cid:20)(cid:20)(cid:18)(cid:21)(cid:26)(cid:14)(cid:23) (eBook) DOI 10.1057/(cid:26)(cid:24)(cid:25)(cid:18)(cid:18)(cid:20)(cid:24)(cid:20)(cid:20)(cid:18)(cid:21)(cid:26)(cid:23) To Annaliese Cassarino, my wife, and Charles and JoAnn Simpson, my parents This page intentionally left blank Contents List of Exhibits ix Preface xiii Acknowledgments xv Introduction 1 Part I Theory 1 Money, Banking, and Inflation 9 2 How Does the Government Cause Inflation? 29 3 What Causes the Business Cycle? 57 4 In Defense of Austrian Business Cycle Theory 87 Part II Practice 5 The Recession of the Early 1980s 113 6 The Business Cycle in Late Twentieth-/Early Twenty-First-Century America 143 7 John Law’s Financial Scam and the South Sea Bubble 171 8 The Great Depression 187 9 The Business Cycle in America from 1900 to 1965 221 Epilogue 245 Notes 247 Selected Bibliography 267 Index 273 This page intentionally left blank Exhibits 1.1 Example of a blank balance sheet 19 1.2 Bank balance sheet 20 1.3 Bank A’s initial balance sheet 21 1.4 Bank A’s balance sheet after making a $900 loan 21 2.1 T he effect in the loan market of an open-market purchase of government debt by the Fed 30 2.2 The long-term effect in the loan market of a greater inflation rate (of the money supply) on interest rates 34 3.1 One-time increase in money and spending of 2 percent 66 3.2 Continuous annual increase in money and spending of 2 percent 67 3.3 Accelerating increase in money and spending 68 3.4 A ccelerating increase in money and spending with change in velocity 70 3.5 Hypothetical example of the business cycle 83 5.1 Real GDP, 1975–85 115 5.2 Real GNR, 1975–85 119 5.3 Business failure rate, 1975–87 121 5.4 Unemployment rate, 1975–85 121 5.5 Industrial production (consumers’ goods, intermediate goods, and materials), 1975–85 122 5.6 Industrial production (total, durable manufactured goods, and nondurable manufactured goods), 1975–85 123 5.7 Rate of profit and interest rate (return on equity and commercial paper rate), 1975–87 126 5.8 Average annual rate of change of the money supply and prices during specified five-year periods, 1960–85 128 5.9 Velocity of money using the money supply described in exhibit 5.8 and GNR, 1960–86 130 5.10 Rate of change of the money supply, 1974–85 131 6.1 Real GDP, 1965–2012 144 6.2 Real GNR, 1965–2010 145 6.3 Business failure rate, 1965–98 146 6.4 Unemployment rate, 1965–2012 147 6.5 Industrial production (consumers’ goods, intermediate goods, and materials), 1965–2012 148
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