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ECONOMICS 601: MACROECONOMICS

WINTER 2009

Professor: Dr. L. Randall Wray

                            Class Meets Monday 4-7pm, Royal 212
Website:              http://cas.umkc.edu/econ/economics/faculty/wray/raymain.html
Office:                 202C Mannheim Hall
Office Hrs:          Monday 1:30 – 2:30; Wednesday 2:30-3:30 and by appointment
Phone:                  235-5687 (note: don’t leave a message if I’m not in)
E-mail:                wrayr@umkc.edu (Preferred way to reach me!)

Teaching Assistant: Yeva Nersisyan; Office Mannheim Hall 202A; phone 235-5999; email ysnz72@umkc.edu

Books:

J.M. Keynes, The General Theory (JMK-GT) http://etext.library.adelaide.edu.au/k/keynes/john_maynard/k44g/index.html

John King, A History of Post Keynesian Economics (King)

Snowden & Vane, Modern Macroeconomics (SV); {note this is an advanced-intermediate text, for use as a reference}

L.R. Wray, Understanding Modern Money (LRW-UMM)

Most readings will come from JMK-GT, King, and journal articles; I will supply one copy of each required reading, which each student can copy (at her/his own expense). Xeroxes are kept in a file drawer outside my office. Note: due to budget cuts, please do not use the department’s copy machine! Many articles are available from www.jstor.org, www.levy.org, or www.cfeps.org, and most are posted on my faculty website: (http://cas.umkc.edu/econ/economics/faculty/wray/601wray/601syllabus_winter2008.htm), or on Professor Kelton’s website. Alternatively, you can find many readings at the library. Please buy the books on-line as the bookstore probably will not have them in time.

Grading: there will be a midterm and a final exam. The midterm will be “open notes”; it will cover material through the sixth meeting (inclusive). You can bring 1 page of notes (8 ½” by 11”, you can write on both sides). The final exam will be a “closed notes” exam; if we can get access to the computer lab, it will be taken on computers (as are the qualifying exams). There will be short homework assignments and in-class presentations. You will provide an outline of your in-class presentations in advance. Your course grade will be composed of the following: participation and presentations (10%) + community service (5%) + midterm (35%) + final (40%) + homework (10%). Your community service grade will depend on payment of a 5 Buckaroo tax (a percentage point for each Buckaroo paid). Note that late work will be devalued by 10%.

The outline below is preliminary, but the final schedule of topics and readings will be very close to this. Most communication will be done via email, which is also the best way to reach me.

COURSE OUTLINE (Partial list of readings)

1. Jan 12: Introduction, Pre-Keynes Neoclassical thought

JMK-GT Ch 1-2; SV Ch 1-2; Krugman: Introduction by Paul Krugman to The General Theory of Employment, Interest, and Money, by John Maynard Keynes

Note: no class Jan 19, MLK B-Day. I suggest you try to read all of the GT by Jan 28.

2. Jan 26: Definitions, Ideas, Propensity to consume, Investment

JMK-GT Ch 3-14

3. Feb 2: Investment, Money, Interest, Money-Wages, Prices, Conclusion

JMK-GT Ch 15-24

4. Feb 9: ISLM, Neoclassical Synthesis, “Extensions” of Keynes, Growth Theory, Disequilibrium approaches

SV Ch 3, 11

Hicks: "Mr. Keynes and the Classics" (Econometrica 1937), "Some Questions of Time in Economics" (in Tang 1976), and "IS-LM: an explanation" (JPKE 1980-1)

King Ch 1,3

Friedman, B.: “Crowding out or crowding in? Economic consequences of financing government deficits” (Brookings Papers 1978)

Meyer "The Balance Sheet Identity, the Government Finance Constraint, and the Crowding Out Effect"

Poole: "Optimal choice of monetary policy instruments in a simple stochastic macro model" (QJE 1970)

Leijonhufvud: "Keynes and the Keynesians: a suggested interpretation"; "Keynes and the classics: two lectures", On Keynesian Economics and the

Foley: "On two specifications of asset equilibrium in macroeconomic models" (JPE 1975)

Solow, "A contribution to the theory of economic growth", QJE, 1956.

Domar, "Capital Expansion, rate of growth, and employment" Essays in the Theory of Economic Growth, 1957.

Apr 1946).

5. Feb 16: Monetarism, Mark I and Mark II

SV Ch 4-5

Brunner: “The role of money and monetary policy” (FRB-St. Louis Review 1968)

Balbach: “How controllable is Money Growth?” (FRB-St. Louis Review 1981)

Friedman: "A monetary and fiscal framework for economic stability" (in Essays in Positive Economics, 1953), "The role of monetary policy" (AER 1968), and "Quantity theory of money" (in The New Palgrave, 1987)

Tobin: “Friedman’s Theoretical Framework” (in Milton Friedman’s Monetary Framework, ed. by Gordon, 1970)

Cooley and LeRoy, "Identification and estimation of money demand" (AER, 1981)

Sims: "Comparison of interwar and postwar business cycles: monetarism reconsidered" (AER 1980)

Lucas: "Expectations and the Neutrality of money" (JET 1972), "Econometric Policy Evaluation: a critique" (JME 1976)

Muth: "Rational Expectations and the Theory of Price Movements" (Econometrica 1961)

Sargent and Wallace: "Rational expectations, the optimal monetary instrument, and the optimal money supply rule" (JPE 1975)

Warren Samuels review of Leeson

6. Feb 23: Real Business Cycle, New Keynesian, Summary of Orthodoxy

SV Ch 6, 7

King and Plosser: "Money, credit, and prices in a real business cycle" (AER 1984)

Plosser: "Understanding real business cycles" (JEP 1989)

Mankiw: "Real business cycles: a new Keynesian perspective" (JEP 1989)

Bernanke: "Nonmonetary effects of the financial collapse in the propagation of the Great Depression" (AER 1983)

Greenwald and Stiglitz: “Keynesian, new Keynesian and new Classical Economics”, Oxford Econ Papers 39, 1987.

Greenwald, Stiglitz, and Weiss: "Informational imperfections in the capital market and macroeconomic fluctuations", AEA papers and proceedings, May 1984.

Stiglitz and Weiss: "Credit rationing in markets with imperfect information" (AER 1981)

Caskey and Fazzari: “Macroeconomics and Credit Markets” (JEI 1986)

Gordon: "What is New-Keynesian Economics?" (JEL 1990)

Taylor: "Staggered wage setting in a macro model" (AER 1979)

Yellin: "Efficiency wage models of unemployment" (AER 1984)

Fischer: "Long-term contracts, rational expectations, and the optimal money supply rule" (JPE 1977)

Ben Friedman: "Lessons on monetary policy from the 1980s", JEP 1988.

Mankiw: "A quick refresher course in macroeconomics", JEL 28, Dec 1990.

*******************MIDTERM MARCH 2*******************************************

7. Mar 9: Intro to Heterodoxy

SV Ch 8-9

Chick: “Keynesians, Monetarists and Keynes: the end of the debate—or a beginning?” (in Post Keynesian Economic Theory, ed. by Arestis and by Arestis and Skouras)

Harcourt: “Post-Keynesianism: quite wrong and/or nothing new?” (in Post Keynesian Economic Theory, ed. by Arestis and Skouras),

Sawyer “The political economy of the Phillips curve”, (Thames Papers in Political Economy Summer 1987)

Davidson: “The demand and supply of labour” (in Post Keynesian Macroeconomic Theory 1994)

Davidson: “A Keynesian view of Friedman’s theoretical framework for monetary analysis” (in Milton Friedman’s Monetary Framework, ed. by Gordon, 1970)

Kregel: The Reconstruction of Political Economy (1973) (Especially Part Two)

Kregel: “Economic methodology in the face of uncertainty: the modeling methods of Keynes and the Post Keynesians” (EJ 1976)

Eichner and Kregel: "An essay on Post-Keynesian theory: a new paradigm in economics" (JEL 1975)

King Ch 2

Boulding: A Reconstruction of Economics, 1950. (Read especially Ch 2)

8. Mar 16: Monetary theory of production; Essential properties of money; Liquidity Preference

Keynes: "The process of capital formation" (EJ 1939); “A monetary theory of production” (CW vol XIII, p. 408)

Dillard: “A monetary theory of production: Keynes and the Institutionalists” (JEI 1980), the Economics of John Maynard Keynes: the theory of a monetary economy (1948)

Wray: “Boulding’s Balloons”, JEI, 1990; “The monetary macroeconomics of Dudley Dillard” (JEI 1993); “Saving, profits and speculation in capitalist economies" (JEI 1991);

Davidson: Money and the Real World (1978), Post Keynesian Macroeconomic Theory (1994); "Money and the Real World" (EJ 1972)

Wray: “Money, interest rates, and monetarist policy” (JPKE 1993)

Keynes: "Alternative Theories of the rate of interest" (EJ 1937)

Townshend: "Liquidity premium and the theory of value" (EJ 1937)

Tsiang: "Liquidity preference and loanable funds theories, multiplier and velocity analysis: a synthesis" (AER 1956)

Kregel: “The multiplier and liquidity preference: two sides of the theory of effective demand” in The Fundation of Keynesian Analysis (Barrere ed.) 1988

Wray: “Alternative theories of the rate of interest” (CJE 1992)

King Ch 5,6

9. Mar 30: The New Monetary Consensus, Endogenous Money, Horizontalism, Circuitiste

Wray: “The Fed and the new monetary consensus”, Levy Institute Public Policy Brief #80.

Arestis and Sawyer: “Inflation Targeting”, Levy Working Paper #388.

LeHeron and Carre: “Credibility vs Confidence in Monetary Policy”, 2004.; LeHeron: "Alan Greenspan, the Confidence Strategy"

King Ch 8

Moore: “Contemporaneous reserve accounting: can reserves be quantity constrainted?” (JPKE 1984); “Wages, bank lending, and the endogeneity of money" (in Money and Macro Policy, ed. by Jarsulic); and “Money supply endogeneity” (JPKE 1991)

Pollin: “Two theories of money supply endogeneity” (JPKE 1991)

Cottrell: “Post-keynesian monetary economics” (CJE 1994)

Schumpeter: The theory of economic development (1949) (Read especially Ch 3)

Minsky: “Schumpeter: Finance and Evolution” (in Evolving Technology and Market Structure, ed. by Heertje and Perlman, 1990)

Minsky: "Schumpeter and finance" in Money and Institutions in Market Development (Biasco and Roncaglia eds.)

Bellofiore: “Money and development in Schumpeter” (RRPE 1985)

Graziani: “The theory of the monetary circuit” (Economies et Societes 1990)

Wray: “Government deficits, liquidity preference and Schumpeterian innovation” (Economies et Societes 1994);

Lavoie: “Credit and money: the dynamic circuit, overdraft economics, and Post Keynesian economics” (in Money and Macro Policy, ed. by Jarsulic 1985); “The endogenous flow of credit and the Post Keynesian theory of money” (JEI 1984)

Rousseas: “The spheres of industrial and financial circulation revisited” (Economies et Societes 1994)

Warin: "A Note on “Post-Modern” Monetary Policy"

10. Apr 6: Modern Money and Functional Finance;

Wray: Understanding Modern Money (1998) (Read especially Ch 4-5)

Lerner: “Money as a creature of the state” (AER 1947)

Bell: “The role of the state and the hierarchy of money” Cambridge Journal, Mar 2001; “Do taxes and bonds finance government spending?” JEI, Sept 2000.

Innes: “What is money?” (Banking Law Jnl, 30(5), May 1913)

Knapp: The State Theory of Money 1924

Ingham: ‘Babylonian madness: on the historical and sociological origins of money’, in What is Money?, edited by John Smithin, 2000.

Ingham: "Further reflections on the ontology of money: responses to Lapavitsas and Dodd",Economy and Society Volume 35 Number 2 May 2006

Lerner: “Functional finance and the federal debt” (Social Research, 1943)

Goodhart: “The two concepts of money: implications for the analysis of optimal currency areas” (European jnl of Political Economy 1998)

11. Apr 13: Cambridge Economics, Capital Controversy, Long Run vs Short Run; Cycles, Stabilization Policy

King Ch 4, 9

Garegnani: (Part A, B) “Notes on consumption, investment and effective demand” (CJE 1978), “On a change in the notion of equilibrium in recent work on value and distribution” (in Keynes’s Economics and the theory of value and distribution, ed. by Eatwell and Milgate, 1983)

Eatwell: “Theories of value, output and employment” (in Keynes’s Economics and the theory of value and distribution, ed. by Eatwell and Milgate, 1983)

Milgate and Eatwell: (Part A, B) “Unemployment and the market mechanism” (in Keynes’s Economics and the theory of value and distribution, ed. by Eatwell and Milgate, 1983)

Kregel: "Hamlet without the prince: Cambridge macroeconomics without money" (AER 1985)

King Ch 7, 10, 11,12

Wray: “Deficits, Inflation and monetary policy” (JPKE 1997); “A Friedmanian Approach to Restoring Growth” CFEPS Working paper #22

Minsky: Stabilizing an Unstable Economy (1986); “The financial instability hypothesis: a restatement”, in Arestis and Skouras, Post Keynesian Economic Theory, 1985

Papadimitriou and Wray: “The economic contributions of Hyman Minsky: varieties of capitalism and institutional reform” Review of Political Economy 10(2) 1998

Papadimitriou and Wray: Introduction to Stabilizing an Unstable Economy

Albert M. Wojnilower, Benjamin M. Friedman and Franco Modigliani : “The central role of credit crunches in recent financial history” (Brookings Papers 1980)

12. Apr 20: Marxian Critiques; International Macroeconomics

Gillman: Prosperity in Crisis (1965) (Read especially Part I and Part II)

Wolfson: Financial Crises (1994) (Read especially Ch 2-3; Ch11)

Kenway: “Marx, Keynes and the possibility of crisis” (in Keynes’s Economics and the theory of value and distribution, ed. by Eatwell and Milgate, 1983

Sherman "Endogenous and Exogenous Business Cycles Theories" in The Business Cycle by Sherman

Davidson: “Reforming the World’s Money” (JPKE 15(2) Winter 1992-3)

Wray: “International Aspects of Current Monetary Policy” CFEPS Working Paper #31.

Wray “Seigniorage versus sovereignty” (manuscript))

SV Ch 12

13. Apr 27: Financial Crisis; Review for final

Wolfson: Financial Crises (1994) (Read especially Ch 2-3; Ch11)

Ferguson T. and Johnson R. "Too Big To Bail: The “Paulson Put,” Presidential Politics, and the Global Financial Meltdown. Part I: From Shadow Financial System to Shadow Bailout"

Ferguson T. and Johnson R. "Too Big To Bail: The “Paulson Put,” Presidential Politics, and the Global Financial Meltdown. Part II: Part II: Fatal Reversal– Single Payer and Back"

Galbraith, J. Testimony before the Committee on Financial Services, U.S. House of Representatives, Hearings on the Conduct of Monetary Policy, February 26, 2009

Wray, R. "The Rise And Fall Of Money Manager Capitalism: A Minskian Approach"

Tymoigne, E. "The U.S. Mortgage Crisis: Subprime or Systemic?"