A Monetary Explanation for the Recession of 1797

May, 2011

This paper presents a monetary explanation the US recession of 1797. Credit expansion initiated by Bank of the United States in the early 1790s unleashed a bout of inflation and low real interest rates which spurred a speculative investment bubble in real estate and capital intensive manufacturing and infrastructure projects. A correction occurred as domestic inflation created a disparity in international prices that led to a reduction in net exports. Specie flowed out of the country, prices began to fall, and real interest rates spiked. In the ensuing credit crunch businesses reliant upon rolling over short term debt were rendered unsustainable. The general economic downturn which ensued throughout 1797 and 1798 involved declines in the price level and nominal GDP, the bursting of the real estate bubble, and a cluster of personal bankruptcies and business failures. We detail the scope of the credit expansion, price level movements, fluctuations in interest rates, and the investment errors that these conditions spawned in several sectors of the economy.

The Perils of Unprincipled Policy

March, 2012

Indiana politicians have recently made strides for sound public policy, especially on the economic front. While neighboring states are still coming to grips with budget crises induced by the housing bust and recession, Indiana has not only been a bastion of fiscal discipline but has forged ahead with region- and nation-leading reforms designed to expand the role of market forces and enhance economic development.

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New Evidence on the Resource Costs of Irredeemable Paper Money

January, 2013

This paper compares estimates of the resource costs of monetary gold accumulation under the classical (1880-1914) gold standard with estimates of the resource costs associated with gold “investment” in the post-Bretton Woods era (1972-present) for the United States. While the costs associated with monetary or “investment” uses of precious metals — primarily gold coins and bullion — fell to historically low levels during the “great moderation” era (1982-2007), they rose sharply during both the “great inflation” era of the 1970s and the “great recession” era (2008-present), approaching levels consistent with the average for the classical gold standard in terms of real gold “investment” per capita. These results indicate that a transition to fiat money does not eliminate the resource costs of investment or “monetary” uses of gold. Indeed, fiat money volatility, whether realized as high and variable inflation rates, or the large monetary expansion undertaken since the 2008 financial crisis, can generate gold investment on par with the levels of monetary gold production of the classical gold standard.

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Teaching Unemployment with the Jobs Train

March, 2014

The jobs train is an interactive classroom exercise designed to provide students with a concrete, intuitive understanding of why unemployment occurs naturally in a market economy. In a classroom economy simulation, students experience a contrived labor market regime that generates 0% unemployment. By contrasting the obviously unsatisfactory outcomes of the jobs train with real world labor markets, students observe clearly the market-based underpinnings of both frictional and structural unemployment. With this experience in mind, students are prepared to discuss the natural rate of unemployment, and gain an appreciation for labor market institutions that promote optimal job search and skill matching.

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Inventing Freedom: How the English-Speaking Peoples Made the Modern World

May, 2014

 

In the political correctness ethos of our age, one of the worst crimes an academic might commit is to make a claim of civilizational exceptionalism for a particular nation – i.e. a particular group of people identified primarily by ethno-linguistic ties. Fortunately, Daniel Hannan is a politician, not an academic, and thus is free to pen a book committed
to such a thesis. In Inventing Freedom, Hannan makes a bold, intricate case for the legal and political – and therefore economic – exceptionalism of the English-speaking countries, which he refers to as the “Anglosphere.” Hannan’s book is sure to raise the hackles of multiculturalists and the diversity lobby, while appealing to the nativist sentiments of some
conservatives. Yet this book is no mere polemic offered up for party ideologues, such as might emerge from the pen of a Sarah Palin or Al Franken. Hannan’s work is of a much more nuanced, scholarly bent, and brings a deep historical perspective to issues of central importance to the field of constitutional political economy. 

In the political correctness ethos of our age, one of the worst crimes an academic might commit is to make a claim of civilizational exceptionalism for a particular nation – i.e. a particular group of people identified primarily by ethno-linguistic ties. Fortunately, Daniel Hannan is a politician, not an academic, and thus is free to pen a book committedto such a thesis. In Inventing Freedom, Hannan makes a bold, intricate case for the legal and political – and therefore economic – exceptionalism of the English-speaking countries, which he refers to as the “Anglosphere.” Hannan’s book is sure to raise the hackles of multiculturalists and the diversity lobby, while appealing to the nativist sentiments of someconservatives. Yet this book is no mere polemic offered up for party ideologues, such as might emerge from the pen of a Sarah Palin or Al Franken. Hannan’s work is of a much more nuanced, scholarly bent, and brings a deep historical perspective to issues of central importance to the field of constitutional political economy. 

 

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The Greatest Externality Story (N)ever Told

June, 2014

This paper criticizes the treatment of externalities presented in modern undergraduate economic textbooks. Despite a tremendous scholarly push-back since 1920 to Pigou’s path-breaking writings, modern textbook authors fail to synthesize important critiques and extensions of externality theory and policy, especially those spawned by Coase. The typical textbook treatment: 1) makes no distinction between pecuniary and technological externalities; 2) is silent about the invisible hand’s unintended and emergent consequences as a positive externality; 3) overemphasizes negative externalities over positive ones; 4) ignores Coase’s critique of Pigouvian tax “solutions;” and 5) ignores the potential relevance of inframarginal external benefits in discussions of policy “solutions” to negative externalities. Aside from presentations of “The Coase Theorem” excerpted from only 4 pages of Coase’s voluminous writings, it is as though the typical textbook author slept through nearly a century of scholarly critique of Pigou.

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Our Constitutional Moment

May, 2014

The United States are in a constitutional crisis, with a national government that will not and cannot control its growth. A single indicator tells the entire story: In the 68 years since the end of World War II, federal spending has exceeded revenue in 56 of those years.[1] More importantly, the average size of federal deficits has ballooned from less than 1 percent of GDP (Gross Domestic Product) in the 1950s and 1960s to more than 5 percent of GDP today,[2] leaving young Americans and coming generations with a fiscal burden that will not be resolved without serious economic pain.

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Current Evidence on the Resource Costs of Irredeemable Paper Money

May, 2015

In 1986, Milton Friedman published a brief article in the Journal of Political Economy suggesting the possibility that real resource costs associated with the production and use of money could be greater under the current fiat money regime than under the commodity money regimes that preceded it. His article, and the broader implication about the resource costs of paper money, however, received scant attention. For by 1986, the Fed’s disinflationary policies had come to full fruition, inaugurating the Great Moderation that ushered in two decades of low inflation, low unemployment, and strong real growth in the U.S. economy.

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Commercial Diplomacy in the Adobe Empire

September, 2015

 

This paper investigates information and trust mechanisms employed by international traders in the early 19th century on the Great Plains frontier, using as a case study Bent, St. Vrain & Company (BSV). BSV dominated the burgeoning Santa Fe Trail trade amongst Americans, Mexicans, and the various nomadic Indian tribes inhabiting the frontier through superior application of “commercial diplomacy.” BSV went to great lengths to signal trustworthiness to their trading partners, adopting in large measure Indians’ own trading customs and employing other traditional mechanisms of trust and reciprocity.
 
The economic outcomes of the Adobe Empire era illustrate the catallactic nature of spontaneous international trade - i.e. the notion that economic exchange involves “turning enemy into friend.” The Indian trade in general, and the case of BSV in particular, gives credence to the doux commerce thesis: the idea that the pursuit of profits promotes peace between peoples.

This paper investigates information and trust mechanisms employed by international traders in the early 19th century on the Great Plains frontier, using as a case study Bent, St. Vrain & Company (BSV). BSV dominated the burgeoning Santa Fe Trail trade amongst Americans, Mexicans, and the various nomadic Indian tribes inhabiting the frontier through superior application of “commercial diplomacy.” BSV went to great lengths to signal trustworthiness to their trading partners, adopting in large measure Indians’ own trading customs and employing other traditional mechanisms of trust and reciprocity.


The economic outcomes of the Adobe Empire era illustrate the catallactic nature of spontaneous international trade - i.e. the notion that economic exchange involves “turning enemy into friend.” The Indian trade in general, and the case of BSV in particular, gives credence to the doux commerce thesis: the idea that the pursuit of profits promotes peace between peoples.

Continue reading at SSRN.

Eamonn Butler, Friedrich Hayek: The Ideas and Influence of the Libertarian Economist

March, 2015

In this article Tyler Watts reviews Eamonn Butler's efforts to ably summarize the entire corpus of Hayek’s thought into what Watts determines to be a brief and accessible overview. This is quite a feat when one considers that Hayek’s professional career spanned over seven decades, involving major contributions to economics, psychology, philosophy, and politics, with collected works running to 19 volumes. Watts foes on to describe how Butler introduces readers to the core themes and insights of Hayek’s thought in a concise and readable fashion, avoiding both over-simplification and jargon. He maintians that Butler’s ease in conveying the depth and complexity of Hayek’s intellectual program to the modern reader comes as no surprise after a look at Butler’s impressive pedigree. 

 

Find article at Springer Link. 

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