The Money Interest and the Public Interest: American Monetary Thought, 1920-1970

327 Pages·1998·1.83 MB·English

by  Perry G. Mehrling

The studies in this series are published under the direction of the Department of
Economics of Harvard University. The department does not assume
responsibility for the views expressed.
American Monetary Thought, 1920-1970
Perry G. Mehrling

Pretacc ix
Acknowledgments xiii
Introduction 1
I Allyn Abbott Young (1876-1929)
1. Intellectual Formation 13
Richard 1. Elv and Esiqlish Political Economy 19
John hetn'evand the Lngic of'Scientifc Inquiry 24
Economic Theory and Statistics 28
2. Early Monetary Ideas .31
J. Laurence Lauijhlin versus the Quantity Theory 33
Irivinrq Fisher and the Quantity Theory 39
3. War and Reconstruction 46
War Finance aitd Monetary I)isordcr 48
Tlie Monetary Standard 54
Why Gold? 57
4. Monetary Management in the Twenties 62
Index Numbers and Price Stabilization 66
Production and Speculation 69
Ralph Hawtrev and the Control of'Business Cycles 72
77)e Limits of Monctarv Policy 77
II Alvin Harvey Hansen (1887-1975)
5. Intellectual Formation 85
Monev and Technology 92
Continental Business Cycle Theory 96
Money, Income, and Albert Aftalion 99
6. Depression 103
Money and Depression 104
The Depression as a Business Cycle 107
Hansen's Monetary Thought 110
Social Control versus Laissez-Faire 114
7. Stagnation 118
The New Frontier 119
Big Government 123
Money and Sound Finance 126
Hansen and Keynes 130
8. The Golden Age 137
The Makinq of American Keynesianism 140
Keynesianism versus Institutionalism 146
The New Economics and Money 150
The Origin of Monetary Walrasianism 154
III Edward Stone Shaw (1908-1994)
9. Intellectual Formation 159
John B. Canning and Ralph Hawtrev 166
London, Robertson, and Keynes 169
Money in a 7hcorvrf Bankinq 1,74
10. From Money to Finance 179
Money in a Tlicorv of Finance 184
Finance and U.S. Economic Development 187
A Tlieorv for Policvmakers 192
A Theory fir Academics 19.5
11. Financial Structure and Economic Development 201
Financial Deepening 205
A 7heorv fbr Policvmakers 211
A Theory for Academics 215
Conclusion 221
Notes 229
Bibliography 245
Index 281
A reader who has already gone so far as to pick up this volume may be presumed
to have some curiosity about its advertised subject. A glance at the table of
contents, however, is enough to alert the reader that the book is also a series of
intellectual biographies of three professors of economics whose names are most
likely unknown to the average reader and perhaps even to many professional
economists. This preface is intended to allay the reader's fears that the title is
false packaging. The hook is indeed about what it says it is about, and the story
is indeed told through the biographies of three lives. What then is the link
between the two?
As originally conceived, this volume was to be about the development of
monetary thought in the United States during the period spanning the intellectual
revolution that organized itself around J. M. Keynes' 1936 book, The General
Theory of Emplovinent, Interest, and Monev. It was not to he another hook on
Keynes, of which there are many and some of very high quality, nor even a book
on the American reception of Keynes. Rather I meant to write a hook about
American monetary thought more generally, taking as my thence the
disappearance of a previously rather vigorous monetary discussion at about the
time of the Keynesian revolution and the subsequent "rediscovery of money" in
the decades after World War II. My interest in understanding this period
stemmed from my personal dissatisfaction with the current state of monetary
economics, which led me to search the history of economics for alternative roads
not taken.
Though unconventional with respect to my tastes in monetary theory, I was at
first quite conventional in my conception of the history of economics as simply
the history of doctrine. In trying to understand the ideas of dead economists,
however, I found it necessary to understand the minds that had produced those
ideas and the problems that had spurred those minds into action. As a
consequence, rather than surveying the principal professional publications of
famous monetary economists, I found myself reading all the publications, and as
much of the unpublished writing as I could find, of a select few economists. My
subjects' own writing then led me to read also the hooks and articles that they
had admired or detested and to study histories of the economic events they had
been trying to understand as contemporaries. Finally, in tracing the intellectual
been trying to understand as contemporaries. Finally, in tracing the intellectual
development of each individual mind, I found myself exploring the unfolding of
a life and the expression of individual character. In short, I found myself writing
biography.
In writing biography, I Laced the problem of selection. Whom to choose? It is
clear in retrospect that I was fortunate in my conviction that the way to start the
story was with Allyn Young. When it came time to choose a second subject, and
then a third, I inspected the list of potentials with an eye for continuing the story
that Young's life and work had led nee to tell. Choosing Alvin Hansen, and then
Edward Shaw, I came to see that my story had evolved from one of intellectual
discontinuity-the disappearance and rediscovery_ of money in economic
discourse-into one of continuity. It had become the story of the development of a
particular strand of American monetary thought, one with peculiarly American
origins in the Wisconsin institutionalist school of Richard T. Ely and John R.
Commons. As such, it had become the story of the ever anxious relationship
between finance and democracy, the story of the evolving tension between the
money interest and the public interest in American life.
Having begun by looking for an alternative to modern monetary orthodoxy, I
found that alternative not on the fringe but at the very center of the development
of American economics. (Richard Ely was, it should be recalled, a founder of the
American Economics Association.) Of course what was once central is today
fringe, and therein lies another story, the outline of which is sketched in the
Conclusion. Suffice it to say for now what the biographical approach makes
clear: that economists who came out of the institutionalist tradition had certain
conceptions about the nature of their subject, the research methods appropriate to
it, and their own role as economists in society. They did not think of themselves
as actors on a world-historical stage (like Keynes), nor as geniuses who by the
power of pure thought are able to intuit the eternal laws of the universe (as say,
Einstein). They were altogether more humble, more life-size, men who sought to
understand the drama unfolding around them and to do their bit toward ensuring
a more satisfactory social evolution. They were not, perhaps, Great Economists,
and therein lies their interest. For bud ding economists of today, these men
provide models of possible lives, just as their works provide models for a
possible economics.
In today's world of globally integrated financial markets, the question of the
relationship between the money interest and the public interest has become