The Continuing Muddles of Monetary Theory: A Steadfast Refusal to Face Facts

10 Pages Posted: 8 Oct 2009

See all articles by Charles Goodhart

Charles Goodhart

London School of Economics & Political Science (LSE) - Financial Markets Group

Abstract

(4) the analysis of the evolution of money.(3) the current three-equation neoclassical consensus, assuming perfect creditworthiness, and hence no need for banks;(2) the monetary base multiplier of bank deposits, and the role of reserve ratios;(1) IS/LM: whereby the monetary authorities set the monetary base, and the interest rate is market determined;Lionel Robbins was concerned about the methodology of economic science. When he discussed the relationship between theory and ‘reality’, two of the examples of inappropriate relationships were taken from monetary economics. Such shortcomings continue. Among the worst are: (1) IS/LM: whereby the monetary authorities set the monetary base, and the interest rate is market determined; (2) the monetary base multiplier of bank deposits, and the role of reserve ratios; (3) the current three-equation neoclassical consensus, assuming perfect creditworthiness, and hence no need for banks; (4) the analysis of the evolution of money.

Suggested Citation

Goodhart, Charles A.E., The Continuing Muddles of Monetary Theory: A Steadfast Refusal to Face Facts. Economica, Vol. 76, Issue s1, pp. 821-830, October 2009. Available at SSRN: https://ssrn.com/abstract=1484191 or http://dx.doi.org/10.1111/j.1468-0335.2009.00790.x

Charles A.E. Goodhart (Contact Author)

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom
0207 955 7555 (Phone)
0207 242 1006 (Fax)

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