Lucas and Hume on Monetary Non-Neutrality: A Tension between the Logic and the Technique of Economics
The Center for the History of Political Economy Working Paper Series No. 2015-01
39 Pages Posted: 20 Mar 2015
Date Written: March 18, 2015
Abstract
Translation of old economic doctrines into new technical frameworks led the profession to lose a valid theory of monetary non-neutrality. The theory relates to how additional money diffuses through the economy after entering at different points. Diffusion takes time, redistributes resources, and changes relative prices. This theory of the non-neutrality of money was introduced into economics by David Hume, among others, but it has since disappeared from the leading conversations on monetary non-neutrality. However, the disappearance was not caused by any theoretical or empirical weakness. Using Lucas's Nobel lecture as my point of departure, I argue that it disappeared because it did not fit into the popular technical frameworks.
Keywords: non-neutrality of money, Lucas, Hume
JEL Classification: B11, B41, E31, E32
Suggested Citation: Suggested Citation