Course Syllabus: Economics 5631: Colloquium in Monetary Theory and Policy; Fall 2009
Professor: L. Randall Wray
Course meets: Tuesdays 12:30-3:20 (tentative)
Office hours: M 1-4pm; T 11-12; W 10-12
Email: wrayr@umkc.edu; Phone x5687
Course Description: this course explores advanced monetary theory and policy, examining recent debates and current research practices, as well as classic articles on monetary theory and policy. The course concludes with an examination of the current global financial crisis, and the role played by financial institutions and monetary policy in precipitating (and attenuating) the crisis.
Objectives: This course is designed to expose the student to advanced topics in monetary theory and policy. The course will prepare students to teach (intermediate) undergraduate and graduate courses in money and banking, monetary theory, and monetary policy. It fulfills part of the requirement for a field in monetary theory, as it is the final course needed to complete a field in monetary theory and policy. Students will become familiar with recent debates in monetary theory and current research practices as well as classic articles on monetary theory. Additionally, students will consider policy issues by examining financial institutions, modernization, and regulation. By the end of the semester, students will have prepared a journal-style article on an approved topic. Subsequent revision of the article and submission to a professional journal will complete the field in money.
Prerequisites are Either Econ 5601 OR Econ 5501 PLUS Econ 5531.
Course Requirements: In-class presentations and discussions of readings; assigned (shorter) papers, with presentations of student papers to class; term paper on approved topic with a view to prepare a paper for conference presentation and eventual submission to professional journal.
Course Evaluation: Article presentations, participation…… 10%
Proposal and Draft…………………….. 40%
Presentation of paper………………….. 10%
Term Paper ………………………… … 40%
Each assignment is graded on a 100 point scale, with perfection earning 100. It is expected that perfection is achieved only occasionally—perhaps once in a five year period. For example, a term paper receiving this score is ready for submission to a professional journal. A score of 95 indicates near perfection and might be achieved once per semester. Work of this quality is what one would expect of a new specialist working in the field (ie, a new assistant professor working in the field of monetary economics); for example, a term paper of this quality could be submitted to a professional journal after editing. A score of 90 is awarded when an assignment meets all expectations of the professor including (but not limited to) scope, depth, clarity and originality. With more work, such a paper could serve as a basis for a journal submission. A score of 85 is awarded when an assignment meets most expectations but is deficient with respect to one (or possibly two) criterion(a). A score of 80 indicates serious deficiencies; this is awarded when the performance indicates some promise, but is not of the quality expected of a PhD student working in a specialized field. A score of 75 indicates material that is well below PhD level work, indicating substantial additional work will be required. A score of 70 or below indicates failure. For work that falls between these indicated scores, interpolation will be used to obtain a score. Once all assignments are completed, the final course overall score is obtained by weighting individual assignment scores according to the Course Evaluation weights above. Grades will be assigned as follows:
93+ = A; 90-92 = A-; 87-89 = B+; 83-86 = B; 80-82 = B-; 77-79 = C+; 73-76 = C; (See below for more details)
READINGS BY TOPIC
1) The Nature and Origins of Money: Anthropological, Historical, Institutional and Philosophical Perspectives (those with Roman numerals in front are for the second week; the remainder are for the third week of class; for the other topics we will divide the readings among the weeks later)
Week 1
i. Dalton, G. (1965) “Primitive Money”, American Anthropologist 67 (1), pp. 44-65.
ii. Heinsohn, G. and Steiger, O. (2000) “The Property Theory of Interest and Money”, in Smithin (ed.), What is Money?. London: Routledge.
iii. Godelier, M. (1977) “Salt Money’ and the Circulation of Commodities among the Baruya of New Guinea”, in Perspectives in Marxist Anthropology. Cambridge: Cambridge University Press.
iv. Peacock, M. (2006) “The Origins of Money in Ancient Greece: The Political Economy of Coinage and Exchange”, Cambridge Journal of Economics 30, pp. 637-650.
v. Polanyi, K. (1957) “The Semantics of Money-Uses”, in Polanyi et al. (eds.), Trade and Market in the Early Empires. Glencoe: The Free Press.
vi. Forstater, M. (2006) “Tax-Driven Money: Additional Evidence from the History of Economic Thought, Economic History and Economic Policy”, in Setterfield (ed.), Complexity, Endogenous Money and Macroeconomic Theory: Essays in Honor of Basil J. Moore. Northampton: Edward Elgar.
Week 2
Grierson, P. (1977) The Origins of Money (Chapter 1). London: Athalone.
Knapp, G.F. (1924 [1905]) The State Theory of Money (Chapter 1). London: Macmillan.
Carruthers, B. and Babb, S. (1996) “The Color of Money and the Nature of Value: Greenbacks and Postbellum America”, American Journal of Sociology 101 (6), pp. 1556-1591.
Simmel, G. (1907 [1978]) The Philosophy of Money (Chapter 1). London: Routledge.
Zelizer, V. (1989) “The Social Meaning of Money: ‘Special Monies”, American Journal of Sociology 95 (2), pp. 342-347.
Einaudi, L. (1953 [1936]) “The Theory of Imaginary Money from Charlemagne to the French Revolution”, in Lane and Riemersma (eds.), Enterprise and Secular Change: Readings in Economic History. London: George Allen Unwin.
Wray, L.R. and Tymoigne, E. (2006) “Money: An Alternative Story”, in Arestis and Sawyer (eds.), A Handbook of Alternative Monetary Economics. Northampton: Edward Elgar.
Kregel, J. (1997) The Past and Future of Banks. Rome: Einaudi.
Cramp, A.B. (1962) “Two Views on Money”, Lloyds Bank Review (July), pp. 1-16.
2) Money and Production: Marxian, Sraffian and General Equilibrium Approaches
de Brunhoff, S. (1973) Marx on Money (“Chapter 1: The Marxist Theory of Money”). New York: Urizen Books.
Foley, D. (1983) “On Marx’s Theory of Money”, Social Concept 1 (1), pp. 5-19.
Hodgson, G. (1981) “Money and the Sraffa System”, Australian Economic Papers 20, pp. 83-95.
Nell, E. (2004) “Monetising the Classical Equations: A Theory of Circulation”, Cambridge Journal of Economics 28, pp. 173
Panico, C. (1983) “Marx’s Analysis of the Relationship between the Rate of Interest and the Rate of Profits”, in Eatwell and Milgate (eds.), Keynes’s Economics and the Theory of Value and Distribution. London: Duckworth.
Pivetti, M. (1985) “On the Monetary Explanation of Distribution”, Political Economy: Studies in the Surplus Approach 1 (2), pp. 73-103.
Ciccarone, G. (1998) "Prices and Distribution in a Sraffian Credit Economy", Review of Political Economy, Volume 10, Number 4
Wray, L.R. (1999) “Theories of Value and the Monetary Theory of Production”, Working Paper #261. Annandale-on-Hudson: Levy Economics Institute.
Menger, K. (1892) “On the Origin of Money”, The Economic Journal 2 (6), pp. 239-255.
203.
Week 4
Dowd, K. (2000) “The Invisible Hand and the Evolution of the Monetary System”, in Smithin (ed.), What is Money?. London: Routledge.
Hahn, F. (1987) “The Foundations of Monetary Theory”, in de Cecco and Fitoussi (eds.), Monetary Theory and Economic Institutions. London: Macmillan.
Kiyotaki, N. and Wright, R. (1989) “On Money as a Medium of Exchange”, Journal of Political Economy 97, pp. 927-954.
Lloyd, S. and Shubik, M. (1977) “Trade Using One Commodity as a Means of Payment”, Journal of Political Economy 85 (5), pp. 937-968.
Tavlas, G. and Aschleim, J. (2006) “Money as a Numeraire: Doctrinal Aspects and Contemporary Relevance”, Banca Nazionale del Lavoro Quarterly Review 59, pp. ?.
Ingham, G. (2004) The Nature of Money (“Chapter 1: Money as a Commodity and ‘Neutral’ Symbol of Commodities”). Cambridge: Polity Press.
3) The Circuit Approach and Stock-Flow Consistent Models
Week 5
Parguez, A. (2002) “A Monetary Theory of Public Finance”, International Journal of Political Economy 32 (3), pp. 80-97.
Febrero, E. (2008) “The Monetization of Profits in a Monetary Circuit Framework”, Review of Political Economy 20 (1), pp. 111-125.
Lavoie, M. (2004) “Circuit and Coherent Stock-Flow Accounting”, in Arena and Salvadori (eds.), Money, Credit and the State: Essays in Honour of Augusto Graziani. Aldershot: Ashgate.
Fontana, G. (2000) “Post Keynesians and Circuitists on Money and Uncertainty: An Attempt at Generality”, Journal of Post Keynesian Economics 23 (1), pp. 27-48.
Wray, L.R. (1996) “Money in the Circular Flow”, in Deleplace and Nell (eds.), Money in Motion: The Post Keynesian and Circulation Approaches. New York: St. Martin’s Press.
Parguez, A. and Seccareccia, M. (2000) “The Credit Theory of Money: The Monetary Circuit Approach”, in Smithin (ed.), What is Money?. London: Routledge.
Week 6
Dos Santos, C. and Macedo e Silva, A. (2009) “Revisiting (and Connecting) Marglin-Bhaduri and Minsky: An SFC Look at Financialization and Profit-Led Growth”, Working Paper #567. Annandale-on-Hudson: Levy Economics Institute.
Godley, W. (2004) “Weaving Cloth from Graziani’s Thread: Endogenous Money in a Simple (but Complete) Keynesian Model”, in Arena and Salvadori (eds.), Money, Credit and the State: Essays in Honour of Augusto Graziani. Aldershot: Ashgate.
Godley, W. and Lavoie, M. (2007) “Fiscal Policy in a Stock-Flow Consistent (SFC) Model”, Working Paper #494. Annadale-on-Hudson: Levy Economics Institute.
Graziani, A. (2003) The Monetary Theory of Production (“Chapter 3: A Monetary Economy”). Cambridge: Cambridge University Press.
Lavoie, M. (2005) “Monetary Base Endogeneity and the New Procedures of the Canadian and American Monetary Systems”, Journal of Post Keynesian Economics 27 (4), pp. 689-709.
Lavoie, M. (2001) “Endogenous Money in a Coherent Stock-Flow Framework”, Working Paper #325. Annadale-on-Hudson: Levy Economics Institute.
Ritter, L. (1963) “The Structure of the Flow of Funds Accounts”, Journal of Finance 18 (2), pp. 219-230.
Zezza, G. (2009) “Fiscal Policy and the Economics of Financial Balances”, Working Paper #569. Annandale-on-Hudson: Levy Economics Institute.
4) Orthodox and Heterodox Theories of Finance
Week 7
Boulding, K. (1944) “A Liquidity Preference Theory of Market Prices”, Economica 11 (42), pp. 55-63.
Brown, C. (2007) “Financial Engineering, Consumer Credit, and the Stability of Effective Demand”, Journal of Post Keynesian Economics 29 (3), pp. 427-453.
Fisher, I. (1933) “The Debt-Deflation Theory of Great Depressions”, Econometrica 1 (4), pp. 337-357.
Kregel, J.A. (1998) “Aspects of a Post Keynesian Theory of Finance”, Journal of Post Keynesian Economics 21 (1), pp. 111-133.
Tymoigne, E. (2006) "Asset Prices, Financial Fragility, and Central Banking", Levy Working Paper No. 456
Krippner, G. (2005) "The financialization of the American Economy", Socio-Economic Review; May 2005; 3,2
Barberis, N. and Thaler, R. (2002) “A Survey of Behavioral Finance”, NBER Working Paper No. 9222.
Campbell, J.Y. (2000) “Asset Pricing at the Millennium”, Journal of Finance 55 (4), pp. 1515-1567.
Fama, E.F. (1970) “Efficient Capital Markets: A Review of Theory and Empirical Work”, Journal of Finance 25 (2), pp. 383-417.
Fazzari, S., Hubbard, R.G. and Peterson, B. (1988) “Financing Constraints and Corporate Investment”, Brookings Papers on Economic Activity, pp. 141-195.
Harvey, J. (1996) “Orthodox Approaches to Exchange Rate Determination: A Survey”, Journal of Post Keynesian Economics 18 (4), pp. ?
-----(1991) “A Post-Keynesian View of Exchange Rate Determination”, Journal of Post Keynesian Economics 14 (1), pp. ?
Henwood, D. (1997) Wall Street: How it Works and for Whom (“Chapter 4: Market Models” and “Chapter 5: Renegades”). London: Verso.
Leathers, C. and Raines, J. (2009) “Behavioral Finance: An Institutionalist-Post Keynesian Perspective. Unpublished Manuscript.
Mishkin, F.S. (1991) “Asymmetric Information and Financial Crises: A Historical Perspective”, in R.G. Hubbard (ed.), Financial Markets and Financial Crises. Chicago: University of Chicago Press.
Modigliani, F. and Miller, M. (1958) “The Cost of Capital, Corporation Finance and the Theory of Investment”, American Economic Review 48 (3), pp. 261-297.
Mundell, R. (1960) “The Monetary Dynamics of International Adjustment Under Fixed and Flexible Exchange Rates”, The Quarterly Journal of Economics ?, pp. ?
Raines, J. and Leathers, C. (1996) “Veblenian Stock Markets and the Efficient Markets Hypothesis”, Journal of Post Keynesian Economics 19 (1), pp. 137-151.
Shiller, R. (2005) “Behavioral Economics and Institutional Innovation”, Southern Economic Journal 72 (2), pp. 269-283.
Suarez, J. and Sussman, O. (2007) “Financial Distress, Bankruptcy Law and the Business Cycle”, Annals of Finance 3 (1), pp. 5-35.
Central Banking, Asset Prices and Financial Fragility (“Chapter 2: Central Banking, Asset Prices and Financial Fragility” and “Chapter 3: Asset Price Theories and Central Banking”). London: Routledge.
5) Monetary Policy and Inflation
Arestis, P. and Sawyer, M. (2004) “Monetary Policy when Money is Endogenous: Going Beyond the ‘New Consensus’”, in Lavoie and Seccareccia (eds.), Modern Central Banking: Alternative Perspectives. Northampton: Edward Elgar.
Bernanke, B. and Mihov, I. (1998) “Measuring Monetary Policy”, Quarterly Journal of Economics 108 (3), pp. 869-902.
Bloch, M., Dockery, A.M. and Sapsford, D. (2004) “Commodity Prices, Wages and U.S. Inflation in the Twentieth Century”, Journal of Post Keynesian Economics 26 (3), pp. 523-545.
Christiano, L., Eichenbaum, M. and Evans, C. (1999) “Monetary Policy Shocks: What Have We Learned and to What End?”, in Taylor and Woodford (eds.), Handbook of Macroeconomics. New York: Elsevier Science.
Faust, J. (1998) “The Robustness of Identified VAR Conclusions about Money”, Carnegie-Rochester Conference Series on Public Policy 49, pp. 207-244.
Lavoie, M. (1992) Foundations of Post-Keynesian Economic Analysis (“Chapter 7: Inflation”). Northampton: Edward Elgar.
Mishkin, F. (1999) “International Experiences with Different Monetary Policy Regimes”, Journal of Monetary Economics 43 (3), pp. 579-606.
Mishkin, F. and Schmidt-Hebbel, “One Decade of Inflation Targeting in the World: What Do We Know and What Do We Need to Know?”, in Loayza and Soto (eds.), Inflation Targeting: Design, Performance, Challenges. Santiago: Central Bank of Chile.
Roemer, D. (2000) “Keynesian Macroeconomics without the LM Curve”, Journal of Economic Perspectives 14 (2), pp. 149-169.
Rowthorn, B. (1977) “Conflict, Inflation and Money”, Cambridge Journal of Economics 1, pp. 215-239.
Seccareccia, M. (1984) “The Fundamental Link between Investment Activity, the Structure of Employment and Price Changes: A Theoretical and Empirical Analysis”, Economies et Societies 18 (4), pp. 165-219.
Smithin, J. (2004) “Interest Rate Operating Procedures and Income Distribution”, in Lavoie and Seccareccia (eds.), Modern Central Banking: Alternative Perspectives. Northampton: Edward Elgar.
Woodford, M. (2003) Interest and Prices: Foundations of a Theory of Monetary Policy (Chapter 1). Princeton: Princeton University Press.
Wray, L.R. (2001) “Money and Inflation”, in Holt and Pressman (eds.), A New Guide to Post Keynesian Economics. London: Routledge.
Wray, L.R. (1996) “Government Deficits and Appropriate Monetary Policy”, Economies et Societies 10 (2/3), pp. ?.
DETAILS ON GRADING STANDARDS
While grading individual assignments, the following guidelines will be kept in mind, although they will be modified for this particular subject matter and for the PhD level.
The text below is extracted from (with a few modifications) : Critical Thinking Basic Theory and Instructional Structures and defines the outlines of the standards for the grades of A, B, C, D, and F. These standards are suggestive of common denominator academic values and must be contextualized at two levels: at the department level (to capture domain-specific variations) and at the course level (to capture course-specific differences).
High Level Performance
High level performance implies excellence in thinking and performance within the
domain of a subject and course, along with the development of a range of
knowledge acquired through the exercise of thinking skills and abilities.
A level work is, on the whole, not only clear, precise, and well-reasoned, but insightful as well. Basic terms and distinctions are learned at a level which implies insight into basic concepts and principles.
The A-level student has internalized the basic intellectual standards appropriate to the assessment of his/her own work in a subject and demonstrates insight into self-evaluation.
The A-level student often raises important questions and issues, analyzes key questions and problems clearly and precisely, recognizes key questionable assumptions, clarifies key concepts effectively, uses language in keeping with educated usage, frequently identifies relevant competing points of view, and demonstrates a commitment to reason carefully from clearly stated premises in the subject, as well as marked sensitivity to important implications and consequences.
A-level work displays excellent reasoning and problem-solving within a field and works consistently at a high level of intellectual excellence.
The Grade of B
The grade of B implies sound thinking and performance within the domain of a
subject and course, along with the development of a range of knowledge acquired
through the exercise of thinking skills and abilities.
B level work is, on the whole, clear, precise, and well-reasoned., but does not have depth of insight. Basic terms and distinctions are learned at a level which implies comprehension of basic concepts and principles.
The B-level student has internalized some of the basic intellectual standards appropriate to the assessment of his/her own work in a subject and demonstrates competence in self-evaluation.
The B-level student often raises questions and issues, analyzes questions and problems clearly and precisely, recognizes some questionable assumptions, clarifies key concepts competently , typically uses language in keeping with educated usage, sometimes identifies relevant competing points of view, and demonstrates the beginnings of a commitment to reason carefully from clearly stated premises in a subject, as well as some sensitivity to important implications and consequences. B-level work displays sound reasoning and problem-solving with in a field and works consistently at a competent level of intellectual performance.
Note that at the PhD level, a grade of B- is considered to be the lowest passing grade. The following grades are considered to be failures and subject the student to sanctions as defined in department guidelines.
The Grade of C
The grade of C implies mixed thinking and performance within the domain of a
subject and course, along with some development of a range of knowledge acquired
through the exercise of thinking skills and abilities.
C level work is inconsistently clear, precise, and well-reasoned; moreover, it does not display depth of insight or even consistent competence. Basic terms and distinctions are learned at a level which implies the beginnings of, but inconsistent comprehension of, basic concepts and principles.
The C-level student has internalized a few of the basic intellectual standards appropriate to the assessment of his/her own work in a subject, but demonstrates inconsistency in self-evaluation.
The C-level student sometimes raises questions and issues, sometimes analyzes questions and problems clearly and precisely, recognizes some questionable assumptions, clarifies some concepts competently , inconsistently uses language in keeping with educated usage, sometimes identifies relevant competing points of view, but does not demonstrate a clear commitment to reason carefully from clearly stated premises in a subject, nor consistent sensitivity to important implications and consequences.
C-level work displays inconsistent reasoning and problem-solving within a field and works, at best, at a competent level of intellectual performance.
The Grade of D
The grade of D implies poor thinking and performance within the domain of a
subject and course. On the whole, the student tries to get through the course by
means of rote recall, attempting to acquire knowledge by memorization rather
than through comprehension and understanding.
The student is not developing critical thinking skills and understandings as requisite to understanding course content. D-level work represents thinking that is typically unclear, imprecise, and poorly reasoned. The student is achieving competence only on the lowest order of performance. Basic terms and distinctions are often incorrectly used and reflect a superficial or mistaken comprehension of, basic concepts and principles.
The D-level student has not internalized the basic intellectual standards appropriate to the assessment of his/her own work in a subject and does poorly in self-evaluation. The D-level student rarely raises questions and issues, superficially analyzes questions and problems, does not recognize his/her assumptions, only partially clarifies concepts , rarely uses language in keeping with educated usage, rarely identifies relevant competing points of view, and shows no understanding of the importance of a commitment to reason carefully from clearly stated premises in a subject,.
The D-level student is insensitive to important implications and consequences. D-level work displays poor reasoning and problem-solving within a field and works, at best, at a low level of intellectual performance.
The Grade of F
The student tries to get through the course by means of rote recall, attempting
to acquire knowledge by memorization rather than through comprehension and
understanding. The student is not developing critical thinking skills and
understandings as requisite to understanding course content.
F-level work represents thinking that is regularly unclear, imprecise, and poorly reasoned. The student is not achieving competence in his/her academic work. Basic terms and distinctions are regularly incorrectly used and reflect a mistaken comprehension of, basic concepts and principles.
The F-level student has not internalized the basic intellectual standards appropriate to the assessment of his/her own work in a subject and regularly mis-evaluates his/her own work. The F-level student does not raise questions or issues, does not analyze questions and problems, does not recognize his/her assumptions, does not clarify concepts , does not use language in keeping with educated usage, confuses his/her point of view with the TRUTH, and shows no understanding of the importance of a commitment to reason carefully from clearly stated premises in a subject.
The F-level student is oblivious to important implications and consequences. F-level work displays incompetent reasoning and problem-solving within a field and consistently poor intellectual performance.
Adapted from: Criticalthinking.org Copyright ©2009 Foundation for Critical Thinking, http://www.criticalthinking.org/resources/HE/college-wide-grading-standards.cfm
Responsibilities: Students are expected to read the syllabus and to develop an understanding of the policies adopted. I expect students to attend all classes, to come to class on time and prepared, to do all work on time, and to behave appropriately in class. Students who prefer to skip class, arrive late, gab on the cell phone, and so on, should find another class. I will do my best to help each of you to achieve the grade you desire, but we will succeed only if you put in the requisite effort. I value effort and I reward it: no student who attends all classes, completes assignments on time, follows the policies described in this syllabus, and participates in class will fail this course.
It is the policy of the University of Missouri that there will be no discrimination based upon any factor other than the quality of each student's academic work. I adhere rigidly to that policy. If you have a physical condition that requires special arrangements, please let me know as soon as possible, so that we may make suitable accommodation. If you have any difficulty with the class whatsoever, please discuss it with me as soon as possible so that we may work together to overcome it. Americans with Disabilities: If you have special needs as addressed by the Americans with Disabilities Act (ADA) and need assistance, please notify the Office of Disability Services, A048 Brady Commons, 882-4696, or me, immediately. Reasonable efforts will be made to accommodate your special needs.
Finally, we will strictly adhere to the university’s policy regarding plagiarism. All borrowed work must be properly cited—whether in homework assignments or in work completed in class. Plagiarism is perhaps the most serious transgression encountered in academics and will not be overlooked. Academic honesty is fundamental to the activities and principles of a university. All members of the academic community must be confident that each person’s work has been responsibly and honorably acquired, developed, and presented. Any effort to gain an advantage not given to all students is dishonest whether or not the effort is successful. The academic community regards academic dishonesty as an extremely serious matter, with serious consequences that range from probation to expulsion. If a student is caught cheating, the instructor will assign a grade of Zero on that assignment, and the instructor will report the incident to the Office of the Provost. When in doubt about plagiarism, paraphrasing, quoting, or collaboration, consult the course instructor.