Friday, November 30, 2012

Steve Keen Talk at Cambridge on Monetary Macroeconomics

This is a talk by Steve Keen to the Heterodox Economics Students at Cambridge University, given on November 28th, 2012.

In the talk, Keen stresses the need for a monetary approach to macroeconomics. That is opposed to the “real” analysis so popular amongst neoclassicals, which essentially analyses modern economies as if there were barter systems.

Thursday, November 22, 2012

Robert Murphy’s Politically Incorrect Guide to the Great Depression, Chapter 2: A Critique

This is my critique of Chapter 2 (“Big-Government Herbert Hoover makes the Depression Great”) of Robert Murphy’s The Politically Incorrect Guide to the Great Depression and the New Deal (Washington, DC, 2009).

Again, let us review the problems with this chapter, as follows:
(1) Murphy has serious problems with his definition of “depression.” He cannot define the word “depression” and then stick to that definition.

At p. 162 (note 4), Murphy states that he sides “with the man on the street” in viewing the Great Depression as lasting “throughout the entire 1930s,” because unemployment never fell below 14% in that period.” Yet Murphy is wrong about unemployment, as I mentioned in the last post. When employment provided by government relief work is included in the employment figures, unemployment under Roosevelt came down from 25% to just over 9% by 1937 (Darby 1976). This is a much better record on unemployment than the official statistics reveal. The unemployment rate soared again when Roosevelt cut government spending in 1937, but the adjusted figures show it rising from under 10% to about 12.5% in 1938, and not to around 19% in the old figures.

But, to return to my main point, Murphy seeks to define a “depression” not only as (1) a period of serious real output collapse but also as (2) the aftermath of that real output collapse when unemployment is still high.

If we wish to define “depression” in this way, then we can prove that America had a seven year depression in the 1870s, and another seven year depression in the 1890s.

Let us take the 1870s as an example: the industrial index data of Joseph H. Davis (2004, 2006) shows serious industrial contraction from 1873–1875 and essentially stagnation until 1877 (Davis 2004: 1189), and then unemployment soared right down until 1878 and remained high in 1879:
Year | Unemployment Rate
1869 | 3.97%
1870 | 3.52%
1871 | 3.66%
1872 | 4.00%
1873 | 3.99%
1874 | 5.53%
1875 | 5.83%
1876 | 7.00%
1877 | 7.77%
1878 | 8.25%
1879 | 6.59%

1880 | 4.48%
1881 | 4.12%
(Vernon 1994)
Murphy claims that a liquidationist solution “worked” in the 1870s (Murphy 2009: 30): “the ‘liquidationist’ medicine eventually worked, and recovery kicked in apparently much faster than many observers had expected”! The figures we have do not support such a rosy interpretation of the 1870s.

(2) Murphy (2009 30–39) points out that Hoover was not an advocate of liquidationism.

At this point, Murphy is right and does a valuable service in correcting this myth.

Hoover often gets unfairly blamed as an advocate of the extreme liquidationist solution to the Great Depression, a solution which was actually recommended by Andrew Mellon (US Treasury Secretary from 1921–1931). In truth, Hoover rejected extreme liquidationism, and attempted to fight the onset of Great Depression with a number of limited interventions, including increased government spending. But we must not exaggerate the nature of Hoover’s interventionism. Hoover did not preside over a fiscal policy that could have counteracted the depression: his spending was much too small. Hoover was no modern Keynesian.

(3) After his remarks on Hoover, Murphy comes to an incredibly unconvincing conclusion:
“had Hoover followed the practice of his predecessors, we would not remember him today as presiding over the worst economic calamity in U.S. history” (Murphy 2009: 30).
I am assuming that Murphy here thinks that, if only a liquidationist solution to the depression had been adopted from 1929 onwards, then the depression would not have been as deep and would have ended much more quickly.

There is not a shred of convincing evidence for such an idea. Let us take a real world example that happened at exactly the same time as the US collapse of 1929–1933: Weimar Germany.

In Germany, the government responded with deflationary policies and fiscal contraction, and employers were able to implement very significant wage cuts (Welskopp 2009: 164). Yet Germany still suffered a devastating depression, with severe GDP loss and very high unemployment. In fact, it seems unemployment in Germany soared to over 30% by 1932 – higher even than in the US! (Balderston 2002: 79). How does Murphy explain this?

Another example is Australia in the 1890s: Australia had a gold standard, no Keynesian fiscal policy, no central bank, no capital controls, and light banking regulation (what little that existed was mostly ignored anyway). The 1880s saw a huge asset bubble in certain financial assets and land. When it collapsed, the economy was hit by a debt deflationary depression, and from 1891 to 1893 Australian GDP fell by 17.11%. High unemployment and economic stagnation persisted until the end of the decade. Why did Australia suffer such a depression with no quick recovery?

You can read more about Australia here:
“A Tale of Two Depressions: 1930s and 1890s Australia,” May 18, 2012.

“Free Banking in Australia,” May 16, 2012.
(4) Murphy is also mistaken in thinking that, without Hoover’s limited interventions, the 1930s US depression would have been a “boom-slump, comparable to all earlier ones” (Murphy 2009: 30). In this strange world, apparently all slumps are essentially the same! There are no unprecedented factors like the scale and extent of private debt, the structure and leverage of financial institutions, the size of asset bubbles distorting an economy, and so on. The Great Depression was so severe precisely because it was a debt deflationary collapse caused by underlying economic factors not seen to that degree before in earlier periods. To this extent, 1929–1933 was a disaster different in degree, though not in kind.

And again Murphy never considers counterexamples: why did Germany and numerous other counties suffer even with contractionary fiscal polices?

Why did America plunge back into depression in 1938 when Roosevelt engaged in fiscal contraction and budget balancing?

(5) Murphy ridiculously exaggerates the extent and nature of Hoover’s interventions from 1929 to 1933. At one point, we read (hopefully a joke?) that Hoover tried to fight the depression with policies so destructive that, in retrospect, one almost wonders if he were a Soviet agent”! (Murphy 2009: 31).

(6) Murphy points to Hoover’s attempts to maintain wage levels during the early years of the depression as a major cause of the depth of the Great Depression. Yet, by his own admission (Murphy 2009: 39), many industrialists did not need to be forced into this move: many agreed with Hoover, so, even if one could demonstrate that wage inflexibility was a serious cause of the depression, the fault lay just as much with America’s private capitalists than with the government.

Murphy points to the recession of 1920–1921 as evidence for flexible wages and prices leading to rapid adjustment to full employment, yet for many reasons the recession of 1920 was unlike that of 1929–1933. In 1920, there was no massive asset bubble, nor was there very high private debt levels, and no financial sector collapse.

But one can question how significant Hoover’s high-wage policy really was. According to Murphy, “because … Hoover forbade businesses from cutting wages after the 1929 crash, unemployment went up and up, hitting the unimaginable monthly peak of 28.3 percent in March 1933” (Murphy 2009: 42). But wages were not maintained at high levels after 1931. First, even Rothbard admits that, despite Hoover’s high wage policy, wages began falling in 1931 (Rothbard 2008: 270). In fact, wages began falling significantly from 1931 and continued to fall in 1932 and 1933 (Wigmore 1985: 229), along with severe price falls. So why didn’t this arrest the depression?

Also, why didn’t wage and price falls in Germany prevent a very severe depression there?

It is here that Murphy reveals his true colours: the underlying assumptions behind his analysis are not really different from the way a mainstream neoclassical economist analyses economics. Neoclassicals think that, if only nasty government and unions would get out of the way, then we would have a set flexible wages and prices that would allow an economy to converge towards full employment equilibrium. This Walrasian idea sees markets as adjusting smoothly to shocks by automatic processes that adjust prices and wages to new levels that clear all markets, including the labour market. That vision of economics is utterly false and flawed. Markets do not tend to Walrasian general equilibrium, and there is no reason to think flexible wages and prices would clear markets.

For all the Austrian attempts to paint themselves as different from neoclassicals, at heart they share a common fantasy: the naïve belief in price and wage flexibility clearing markets.

There is yet another reason why wage cuts did not work when they happened in the 1930s: debt deflation. If a business or individual has debts fixed in nominal terms, cutting wages will simply made the real burden of debt soar, possibly causing bankruptcy to debtors and then creditors. For a business, its earnings/profits are analogous to workers’ “wages,” and if it cuts it prices and lowers profit, it will also make the real value of its debt soar.

But Murphy has no clue on the dynamics of debt deflation.

(7) In discussing Smoot-Hawley, Murphy exaggerates its effects on the US economy. The Tariff Act of 1930 (or Smoot–Hawley Tariff) became law on June 17, 1930. While Smoot Hawley undoubtedly hurt foreign export-led growth nations dependent on the US market, it was not a major factor in the US contraction from 1929–1933.

Peter Temin explains:
“A tariff, like a devaluation, is an expansionary policy. It diverts demand from foreign to home producers. It may thereby create inefficiencies, but this is a second-order effect. The Smoot-Hawley tariff also may have hurt countries that exported to the United States. The popular argument, however, is that the tariff caused the American Depression. The argument has to be that the tariff reduced the demand for American exports by inducing retaliatory foreign tariffs … Exports were 7 percent of GNP in 1929. They fell by 1.5 percent of 1929 GNP in the next two years. Given the fall in world demand in these years from the causes described here, not all of this fall can be ascribed to retaliation from the Smoot-Hawley tariff. Even if it is, real GNP fell over 15 percent in these same years. With any reasonable multiplier, the fall in export demand can only be a small part of the story. And it needs to be offset by the rise in domestic demand from the tariff. Any net contractionary effect of the tariff was small.” (Temin 1989: 46).
That does not mean that Smoot Hawley was good policy, of course. It clearly harmed world trade and many other countries. But this does not change the fact that the fall in the value of US exports from 1929 onwards – owing to Smoot Hawley, retaliatory tariffs, non tariff barriers, and trade war – does not explain the depth of the contraction of US GNP from 1929 to 1933.

(8) On pp. 45–55, Murphy attempts to paint Hoover as a big spending Keynesian and blames Hoover’s alleged “profligacy” for the seriousness of the depression.

The problem is that (to put it mildly) this is a cartload of garbage, as I have shown here:
“Steven Horwitz on Herbert Hoover: Mostly Misleading,” February 20, 2012.

“Herbert Hoover’s Budget Deficits: A Drop in the Ocean,” May 24, 2011.

“What Hoover Should have Done in 1931,” January 26, 2012.
Let us start with a simple observation.

What happened to total US government spending from 1929–1933? We can see the figures as follows:
Total (federal, state and local) US Government Spending
Year | Total Spending ($ bns) | Increase in Spending

1928 | $11.44 | $0.22
1929 | $11.68 | $0.24
1930 | $11.92 | $0.24
1931 | $12.18 | $0.26
1932 | $12.44 | $0.26
1933 | $12.62 | $0.18
In reality, total spending hardly deviated from its 1920s trend line and growth path. Also, in 1929 total federal expenditures were about 2.5 per cent of the GNP. Government spending as a percentage of GDP rose from 1929–1933 mainly because GNP collapsed not because of huge spending.

So where is Hoover’s huge profligate Keynesian spending? It doesn’t show up because there was no huge profligate Keynesian spending under Hoover.

Yet this is the myth that Murphy peddles and would have his readers believe:
“As with the evaluation of Hoover’s high-wages policy, his high-federal-budget policy can be usefully contrasted with the depression occurring at the end of Woodrow Wilson’s watch. With the conclusion of World War I, the U.S. government slashed its budget from $18.5 billion in FY 1919 down to $6.4 billion one year later. As the U.S. economy entered a depression at the turn of the decade, receipts fell. The Wilson Administration responded by cutting spending even more, down to $5.0 billion in FY 1921 and then following with a single-year slash of 34 percent, down to $3.3 billion in FY 1922. (Because of the fiscal/calendar year mismatch, it is debatable whether Wilson or Harding should be associated with the FY 1922 budget.)

So how do the two strategies stack up? We already know that Hoover faced 20+ percent unemployment after the second full year of his Keynesian stimulus policies. Wilson/Harding, on the other hand, was Krugman’s worst nightmare, taking the axe to federal spending in a way that would have given even Ron Paul the willies, and during a depression to boot! Yet as we already know, unemployment peaked at 11.7 percent in 1921, then began falling sharply. The depression was over for Harding, at the corresponding point when a desperate Hoover had decided to (try to) rein in his massive budget deficits” (Murphy 2009: 49–50).
Some basic facts should be stated first:
(1) In fiscal year 1930, Hoover actually ran a federal budget surplus, not a deficit. Federal policy was contractionary in this fiscal year.

(2) The Federal Reserve raised the discount rate in 1931.

(3) In fiscal year 1933, total federal spending was cut in relation to fiscal year 1932. Hoover introduced the Revenue Act of 1932 (June 6) which increased taxes across the board and applied to fiscal year 1932 and subsequent years. These were contractionary measures, and these two policies are the very antithesis of Keynesianism stimulus.
Murphy declares that Hoover engaged in “Keynesian stimulus policies.” If by this he means that the effect of federal government fiscal policy was weakly expansionary in 1931 and 1932 relative to the collapse of GNP, this is true enough. In 1931, for example, it is well known that fiscal policy was expansionary: one of the stimulative measures (passed over Hoover’s objections, however) included the Veterans’ Bonus Bill. The budget may have expanded demand by 2% of GNP in 1931 more than the 1929 budget, but this was not large relative to the collapse of GNP, which is the key (Temin 1989: 27–28). In 1931, GNP collapsed by 16.11% relative to its level in 1930, from $91.2 billion to $76.5 billion.

If by these words above, Murphy means that Hoover engaged in the type of Keynesian fiscal expansion designed to halt the depression to restore growth, he is wrong, and contemptibly wrong.

In fiscal years 1931 and 1932, Hoover did indeed raise federal spending (especially in 1932), but it was woefully inadequate. In no sense do these miserable increases compared to the scale of the GDP collapse contradict Keynesian economics. Once you factor in state and local austerity and surpluses, these total federal spending increases was significantly reduced.

In order to stimulate an economy back to its growth path and potential GDP, one has to do the following:
(1) calculate potential GDP and estimate how severely GDP is likely to collapse by,
(2) estimate the Keynesian multiplier and
(3) then design fiscal policy to expand demand by tax cuts and/or appropriate level of discretionary spending increases to hit potential GDP via the multiplier.
In 1931, US GDP collapsed by $14.7 billion dollars, in a debt deflationary spiral with bank failures and a collapse in consumption, employment and investment. If we assume a multiplier of 4 (which is very high), then Hoover’s federal spending increase of $257 million dollars in fiscal year 1931 might have generated at most $1.028 billion of GDP in fiscal year 1931 (the effect of state and local fiscal policy reduced this, however).

But GDP fell by $14.7 billion dollars, and it is the height of idiocy to seriously argue that Hoover’s increase in spending in fiscal year 1931 could have prevented the depression, to offset such a catastrophic fall in GDP. It could never have done any such thing.

To stop the downturn, Hoover needed to do the following:
(1) spend an additional $3.675 billion in fiscal year 1931 in stimulus;

(2) Hoover needed to at least stop fiscal contraction by states and local government, so some bailout of them was necessary to make (1) work.
He did no such thing. Not even close. $257 million dollars is not $3.675 billion. Hoover’s federal fiscal expansion was 6.9% of the sum required.

Of course, if Hoover had quickly stabilised the banking system in 1931, the GNP collapse would have been significantly reduced as well, and the scale of the needed stimulus would have been reduced too.

But Keynesianism did not fail, because Hoover never tried a proper Keynesian stimulus. Hoover’s fiscal policy in 1931 and 1932 was weak and feeble fiscal expansion, woefully inadequate.

(9) On p. 36, Murphy lazily assumes that extra income to producers will simply be spent on either consumption or capital goods investment, even though there is no reason to think this will happen when business expectations are shocked. It also ignores the fact that the richer you are the more likely you are to spend extra income on financial assets on secondary markets, rather than consumption or capital goods investment.

(10) On p. 37, Murphy badly misunderstands the cause of the Great Depression, invoking the unsound and false Austrian business cycle theory.

The main problem in the 1920s was massive debt-fuelled asset inflation in stocks and shares, not allegedly “unsustainable” real capital goods projects induced by Federal Reserve expansion of the money supply.

Unrelated Note

I was astonished to see this recent post where Jonathan Catalán agrees with me!:
Jonathan Finegold Catalán, “When Hell Froze Over,” 22 November, 2012 by


Balderston, Theo. 2002. Economics and Politics in the Weimar Republic. Cambridge University Press, Cambridge.

Darby, M. R. 1976. “Three-and-a-Half Million U.S. Employees Have Been Mislaid: Or, an Explanation of Unemployment, 1934–1941,” Journal of Political Economy 84.1: 1–16.

Davis, Joseph H. 2004. “An Annual Index of U. S. Industrial Production, 1790-1915,” The Quarterly Journal of Economics 119.4: 1177–1215.

Davis, Joseph H. 2006. “An Improved Annual Chronology of U.S. Business Cycles since the 1790s,” Journal of Economic History 66.1: 103–121.

Murphy, Robert. 2009. The Politically Incorrect Guide to the Great Depression and the New Deal. Regnery Publishing, Inc. Washington, DC.

Rothbard, Murray N. 2008. America’s Great Depression (5th edn.). Ludwig von Mises Institute, Auburn, Ala.

Temin, P. 1989. Lessons from the Great Depression, MIT Press, Cambridge, Mass.

Vernon, J. R. 1994. “Unemployment Rates in Post-Bellum America: 1869–1899,” Journal of Macroeconomics 16: 701–714.

Welskopp, T. 2009. “Birds of a Feather: A Comparative History of German and US Labor in the Nineteenth and Twentieth Centuries,” in H.-G. Haupt and J. Kocka (eds.), Comparative and Transnational History: Central European Approaches and New Perspectives. Berghahn Books, New York and Oxford. 149–177.

Wigmore, Barrie. 1985. The Crash and its Aftermath: A History of Securities Markets in the United States, 1929–1933. Greenwood Press, Westport, Conn.

Tuesday, November 20, 2012

Robert Murphy’s Politically Incorrect Guide to the Great Depression, Chapter 1: A Critique

I have recently bought a copy of Robert Murphy’s The Politically Incorrect Guide to the Great Depression and the New Deal (Washington, DC, 2009), an Austrian interpretation of the greatest crisis in modern capitalist history.

The book is an object lesson in why most analysis of this period by Austrians is fundamentally unsound.

Let us review the problems with “Chapter 1: The Crisis,” in a number of points as follows:
(1) From the beginning, we find quite brazen, questionable statements.

Murphy tells us that Franklin Roosevelt’s New Deal “failed to lift America out of the worst economic times in our history” (Murphy 2009: 5).

When Roosevelt was inaugurated and after he turned to moderately expansionary fiscal policy (Murphy’s [2009: 21] claim that Roosevelt engaged in “massive deficit spending” is not even true), both real US GDP and real per capita GDP grew and expanded at quite high rates historically, as we can see here:
Year | GDP* | Growth Rate
1929 | $977,000
1930 | $892,800 | -8.61%
1931 | $834,900 | -6.48%
1932 | $725,800 | -13.06%
1933 | $716,400 | -1.29%
1934 | $794,400 | 10.88%
1935 | $865,000 | 8.88%
1936 | $977,900 | 13.05%
1937 | $1,028,000 | 5.12%

1938 | $992,600 | -3.44%
1939 | $1,072,800 | 8.07%
1940 | $1,166,900 | 8.77%
* Millions of 2005 dollars
Next, real per capita GDP:
Real US Per Capita GDP 1870–2001
(in 1990 international Geary-Khamis dollars)
Year | GDP | Growth rate

1929 | 6899 | 5.02%
1930 | 6213 | -9.94%
1931 | 5691 | -8.40%
1932 | 4908 | -13.75%
1933 | 4777 | -2.66%
1934 | 5114 | 7.05%
1935 | 5467 | 6.90%
1936 | 6204 | 13.48%
1937 | 6430 | 3.64%

1938 | 6126 | -4.72%
1939 | 6561 | 7.10%
1940 | 7010 | 6.84%
(Maddison 2003: 88).
So how exactly does Murphy explain the actual real output data? Murphy asserts that the “recovery was sluggish” (Murphy 2009: 12), but the GDP figures do not support him: the years of recovery under Roosevelt, when fiscal expansion occurred, saw some of the highest real GDP growth rates ever seen in American history, with rates of about 8% in three years, and one year with a 13% growth rate.

By 1936, real GDP had surpassed its 1929 level, and in 1937 real per capita GDP was close to reaching its 1929 level as well – until Roosevelt listened to advocates of fiscal austerity and the economy plunged back into recession.

Furthermore, Murphy has clearly never read M. R. Darby’s “Three-and-a-Half Million U.S. Employees Have Been Mislaid: Or, an Explanation of Unemployment, 1934–1941” (Journal of Political Economy 84.1 [1976]: 1–16). If he did, he would know that official unemployment statistics badly overestimate unemployment under Roosevelt, because of nothing more than ridiculous bias on the part of Lebergott, who compiled the figures. Lebergott failed to include employment provided by emergency and relief work in US federal government programs in his figures (Darby 1976).

When employment provided by relief work is included in the employment figures, unemployment under Roosevelt came down from 25% in 1933 to just under 10% by 1937, on the eve of his turn to austerity. This is a much better record on unemployment than the official statistics reveal. Before austerity hit the US economy in 1937, unemployment was no longer at double digit figures. The unemployment rate soared again when Roosevelt cut government spending from 1937, but the adjusted figures show it rising from under 10% to about 12.5% in 1938, and not to around 19% as in the old figures.

What is particularly amusing is that later in Chapter 1 Murphy contradicts himself on whether Roosevelt’s stimulus helped the economy: he asserts that “the economy seemed to respond to FDR’s bold measures, at least for a while” and it “looked as if the New Deal was working” (Murphy 2009: 12). Then by p. 21, Murphy backtracks, and claims that “massive deficit spending during the 1930s” went “hand-in-hand with chronic double-digit unemployment” – as if unemployment never fell at all under Roosevelt. Then we read that the 1930s was a “failed decade of deficit spending” (Murphy 2099: 24).

At this point, we come to the crux that destroys Murphy’s analysis. At pp. 13–14, Murphy notes that the economy returned to depression in 1938 (the “depression within the Depression”), but never asks why that happened. The major failing of Murphy’s chapter is his unwillingness to explain why America returned to depression in 1938. If he had bothered to do so, he would have found strong evidence that contradicts his Austrian interpretation of the Great Depression.

The answer is that the economy plunged back into depression because in 1937 and 1938 Roosevelt turned to budget balancing. The result was that the federal deficit was virtually eliminated by fiscal year 1938 by the raising of taxes (which contracted private spending power) and the reduction in overall federal spending. In June 1936, the Revenue Act passed Congress and caused a significant increase in income tax rates, as well as the tax on undistributed profits. The main effect of the tax on undistributed profits was to adversely affect the cost of investment for small and medium-sized firms. There is a reasonable case to be made that this tax increased business uncertainty about profitability of investment. Furthermore, the collection of the Social Security tax began in January 1937, another tax measure contracting private spending power.

When fiscal expansion occurred, the economic data show a significant recovery from depression in the 1930s – if not to full employment – but, if anything, they would strongly suggest that the US economy in 1937 was on the road to full employment, if not for the disastrous austerity and fiscal contraction induced by deficit hawks of that era.

Roosevelt was to blame because he listened to them and became a deficit hawk himself. But this lesson is lost on Murphy.

Furthermore, if fiscal expansion clearly promoted recovery, then it follows that more radical fiscal expansion would have led to a faster and better recovery.

Another dismal failing of many Austrian discussions of the Great Depression is the contemptible unwillingness to look at what happened outside the US.

As I have shown here, we have clear evidence that fiscal expansion and stimulus lead to strong and relatively rapid recoveries from depression in New Zealand, Germany and Japan:
“Keynesian Stimulus in New Zealand: 1936–1938,” September 23, 2011.

“Takahashi Korekiyo and Fiscal Stimulus in Japan in the 1930s,” August 27, 2011.

“Fiscal Stimulus in Germany 1933–1936,” September 3, 2011.
(2) On p. 9, Murphy discusses margin trading and its role in the stock market bubble of the 1920s, but totally fails to prove his point: in fact, he does nothing but reinforce the old conclusion that unregulated margin trading had a major role in financial market instability. Murphy’s attempt to pin the blame mainly on the Federal Reserve’s cheap money policy ignores the fact that financial market regulation was precisely what was needed to put curbs on speculative lending.

(3) On p. 11, Murphy notes business opposition to Roosevelt’s New Deal, but ignores the important point that American business was divided in its view of Roosevelt: some opposed him and some supported him. Intense business opposition was restricted to certain sectors:
“While encouraging the growth of big labor and ministering to the needs of the elderly and the poor, the New Deal also provided substantial benefits to American capitalists. Business opposition to Roosevelt was intense, but it was narrowly based in labor-intensive corporations in textiles, automobiles, and steel, which had the most to lose from collective bargaining. The New Deal found many business allies among firms in the growing service industries of banking, insurance, and stock brokerage where government regulations promised to reduce cutthroat competition and to weed out marginal operators. Because of its aggressive policies to expand American exports and investment opportunities abroad, the New Deal also drew support from high-technology firms and from the large oil companies who were eager to penetrate the British monopoly in the Middle East. Sophisticated businessmen discovered that they could live comfortably in a world of government regulation. The ‘socialistic’ Tennessee Valley Authority lowered the profits of a few utility companies, but cheap electric power for the rural South translated into larger consumer markets for the manufacturers of generators, refrigerators, and other appliances.” (Levy et al. 1986: 447-448).
(4) On p. 15, Murphy repeats the myth that Hayek predicted the Great Depression. But that simply isn’t true, as I have shown here:
“Lionel Robbins and the Myth of Hayek’s Prediction of the Great Depression,” February 5, 2012.

“Hayek and the Stock Market Crash of 1929: So Much for His Predictive Powers,” December 28, 2011.
(5) At p. 18, Murphy briefly discusses Milton Friedman, in order to dismiss the latter’s monetarist views on the cause of the Great Depression. Friedman argued that the depth of the depression was caused by the inaction of the Federal Reserve when it allowed the money supply to collapse from 1929 to 1933.

But Murphy fails to mention that a somewhat similar view can also be found amongst certain Austrian economists: Hayek came to believe that an unnecessary and disastrous “secondary deflation” could affect an economy in recession:
“Hayek on Secondary Deflation,” January 24, 2011

“Hayek on Monetary Stabilisation in a Secondary Deflation,” August 6, 2011.
Hayek even expressed agreement with Milton Friedman later in life:
“There is no doubt, and in this I agree with Milton Friedman, that once the Crash had occurred, the Federal Reserve System pursued a silly deflationary policy. I am not only against inflation but I am also against deflation! So, once again, a badly programmed monetary policy prolonged the depression” (Pizano 2009: 13).
Hayek and Ludwig Lachmann even endorsed limited Keynesian stimulus during a depression, but one would never know that from Murphy’s book. Murphy appears to represent one extreme subset of the Austrian school: the Rothbardians.

By p. 24, Murphy acknowledges that the US money supply did indeed “shrink by a third from 1929 to 1933.” But then we read that “there was nothing unprecedented about the speed of the collapse in the money supply .. of the 1930s” (Murphy 2009: 24). Yet Murphy provides no empirical data to support this claim. Can Murphy really point to a period when money supply in America collapsed with this speed and depth, and when there was no recession or depression?

(6) At 23, Murphy badly misrepresents American economic history. He asserts that:
“America’s free market economy had always rebounded from its previous depressions – usually within two years and at most within five years” (Murphy 2009: 23).
On p. 25, we read that before the creation of the Federal Reserve “somehow depressions always managed to sort themselves out fairly quickly.” First, even if it were true that the US economy, before 1914, always recovered within five years of a recession, a five year period can hardly be considered short.

Secondly, the statement is not even true. America had two periods of severe economic malaise in the late 19th century, which lasted more than five years: the 1873–1879 period and 1893–1899 era. In the 1870s, America had a seven year period of economic crisis: a recession (from 1873–1875) and then rising unemployment until 1878, which remained high until 1879.

In the 1890s, America had a double dip recession (the first from 1893–1894 and second in 1896) and then high unemployment up until 1899 – another seven year period of economic malaise.

The interested reader can find more on these periods here:
“US Unemployment in the 1890s,” January 24, 2012.

“Rothbard on the US Economy in the 1870s: A Critique,” September 24, 2012.
Since we do not really have decent estimates for early and mid 19th century GDP and unemployment, we cannot say whether there were periods as bad as the 1870s/1890s in those times.

(7) A final, latent failing of this first chapter and the book in general is the unwillingness to clearly differentiate Keynesian economics from the New Deal: the two were not the same. Conflation of modern Keynesian policies and the New Deal is simply misleading.

The New Deal did indeed have some deleterious aspects, and they were opposed and criticised by Keynes himself, as I have pointed out here:
“Keynes on the New Deal in 1933,” September 2, 2011.
In particular, Keynes criticised the National Industrial Recovery Act (NIRA) and attempts at raising prices by restricting output. Not every program in the New Deal was constructive, and pointing to the failure or harmful nature of some programs does not discredit modern Keynesian theory.
All in all, Chapter 1 of The Politically Incorrect Guide to the Great Depression and the New Deal does not inspire much confidence in Murphy’s analysis, or his questionable Rothbardian school myth-making about the 1930s.


Darby, M. R. 1976. “Three-and-a-Half Million U.S. Employees Have Been Mislaid: Or, an Explanation of Unemployment, 1934–1941,” Journal of Political Economy 84.1: 1–16.

Levy, L. W. et al. (eds). Encyclopedia of the American Constitution (vol. 1). Macmillan, New York.

Maddison, Angus. 2003. The World Economy: Historical Statistics. OECD Publishing, Paris.

Murphy, Robert. 2009. The Politically Incorrect Guide to the Great Depression and the New Deal. Regnery Publishing, Inc. Washington, DC.

Pizano, D. 2009. Conversations with Great Economists. Jorge Pinto Books Inc., New York.

Monday, November 19, 2012

Steve Keen Interview on China, Environmental Issues and Minsky Models

This appears to be a recent interview given on November 18, 2012 while Steve Keen was at the International Conference on Sustainability, Transition and Culture Change (Grand Rapids, Michigan, November 16-18, 2012).

Steve talks about a variety of issues, but all interesting.

Monday, November 12, 2012

Some Observations on US Legal Tender

Under the Federal law of the US, in the Coinage Act of 1965 (Section 31 U.S.C. 5103, titled “Legal Tender”), we have the following statement:
“United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes and dues. Foreign gold or silver coins are not legal tender for debts.”
31 U.S.C. § 5103,
The consequences of this are that, while US currency and coin (and high powered money as bank reserves) is legal tender and cannot be refused as payment to discharge debt, it is not illegal for the private sector to accept debt instruments, such as cheques, bills of exchange, promissory notes, drafts and bank money (or fractional reserve demand deposit money) as payment, before final clearing takes place.

And another consequence is that private checks, promissory notes, bills of exchange, and drafts are not legal tender. This is why you can refuse to accept a cheque or other debt instrument.

From a historical perspective, it is interesting that one private debt instrument that was accepted as legal tender were National banknotes. The era when National banks existed and their private banknotes were produced was the period from 1864–1935.

But, even in this period, National banknotes were never given the status of full legal tender: at this time, these banknotes were never legal tender for customs payments to the US Treasury, salaries and other debts owed by the US government, or interest payments made on national debt (Patten 1891: 37).


Patten, Claudius B. 1891. The Methods and Machinery of Practical Banking. B. Rhodes & Company, New York.

Saturday, November 10, 2012

Why Did Hayek get a Nobel Memorial Prize in Economic Sciences?

And, more importantly, did he really deserve it?

Let us look at the original press release:
Press Release

9 October 1974


The Royal Swedish Academy of Sciences has awarded the 1974 Prize for Economic Science in Memory of Alfred Nobel to

Professor Gunnar Myrdal and Professor Friedrich von Hayek

for their pioneering work in the theory of money and economic fluctuations and for their penetrating analysis of the interdependence of economic, social and institutional phenomena.

The Academy of Sciences consider that Myrdal and von Hayek have, in addition to their contributions to central economic theory, carried out important interdisciplinary research so successfully that their combined contributions should be awarded the Prize for Economic Science.

Since the Economics Prize was inaugurated, the names of two economists, whose research has reached beyond pure economic science, have always been on the list of proposed prizewinners: Gunnar Myrdal and Friedrich von Hayek. They both started their research careers with significant works in the field of pure economic theory. In the main, their early work - in the twenties and thirties - was in the same fields: theory of economic fluctuation and monetary theory. Since then both economists have widened their horizons to include broad aspects on social and institutional phenomena.


The Functional Efficiency of Economic Systems
von Hayek’s contributions in the field of economic theory are both profound and original. His scientific books and articles in the twenties and thirties aroused widespread and lively debate. Particularly, his theory of business cycles and his conception of the effects of monetary and credit policies attracted attention and evoked animated discussion. He tried to penetrate more deeply into the business cycle mechanism than was usual at that time. Perhaps, partly due to this more profound analysis, he was one of the few economists who gave warning of the possibility of a major economic crisis before the great crash came in the autumn of 1929.

von Hayek showed how monetary expansion, accompanied by lending which exceeded the rate of voluntary saving, could lead to a misallocation of resources, particularly affecting the structure of capital. This type of business cycle theory with links to monetary expansion has fundamental features in common with the postwar monetary discussion.

The Academy is of the opinion that von Hayek’s analysis of the functional efficiency of different economic systems is one of his most significant contributions to economic research in the broader sense. From the mid-thirties he embarked on penetrating studies of the problems of centralized planning. As in all areas where von Hayek has carried out research, he gave a profound historical exposé of the history of doctrines and opinions in this field. He presented new ideas with regard to basic difficulties in “socialistic calculating,” and investigated the possibilities of achieving effective results by decentralized “market socialism” in various forms. His guiding principle when comparing various systems is to study how efficiently all the knowledge and all the information dispersed among individuals and enterprises is utilized. His conclusion is that only by far-reaching decentralization in a market system with competition and free price-fixing is it possible to make full use of knowledge and information.

von Hayek’s ideas and his analysis of the competence of economic systems were published in a number of works during the forties and fifties and have, without doubt, provided significant impulses to this extensive and growing field of research in “comparative economic systems.” For him it is not a matter of a simple defence of a liberal system of society as may sometimes appear from the popularized versions of his thinking.

“The Prize in Economics 1974 - Press Release,” 10 November, 2012
There are two reasons given:
(1) Hayek’s business cycle theory research, and

(2) his contribution to the socialist calculation debate, and work on knowledge, prices, and market systems.
It is astonishing that one of the two main reasons given for Hayek’s Nobel Memorial Prize was his business cycle theory: for this was precisely that part of his research program that was a clear failure. Hayek never succeeded in creating a monetary theory of the trade cycle that evaded the serious criticisms his opponents levelled against it, which included the non-existence of the Wicksellian natural rate of interest, the role of subjective expectations, and the questionable role of general equilibrium theory in his theory. Because of the serious problems with his theory, Hayek eventually abandoned his trade cycle theory work and never returned to it. Above all, the promised second volume of the Pure Theory of Capital (1941) where Hayek was supposed to deal with capital and money was never written.

The committee that awarded the prize was also fooled by the myth that Hayek predicted the Great Depression. In my view, that myth was largely created by Lionel Robbins, as I have argued in these posts:
“Lionel Robbins and the Myth of Hayek’s Prediction of the Great Depression,” February 5, 2012.

“Hayek and the Stock Market Crash of 1929: So Much for His Predictive Powers,” December 28, 2011.
In the introduction to the original edition of Prices and Production (London, 1931), Lionel Robbins made a bold claim for Hayek’s predictive power:
“... I cannot think that it is altogether an accident that the Austrian Institut für Konjunkturforschung, of which Dr. Hayek is director, was one of the very few bodies of its kind which, in the spring of 1929, predicted a setback in America with injurious repercussions on European conditions” (Hayek 1931: xi-xii).
But, if one searches the monthly reports (“Monatsberichte” in German) of the institute, one finds little evidence of this prediction.

The most relevant passage in an issue of the Monatsberichte for 26 October 1929 made predictions that were utterly wrong:
“Jedoch besteht derzeit kein Grund, einen plötzlichen Zusammenbruch der New Yorker Börse zu erwarten. Allerdings ist es nicht ausgeschlossen, daß nunmehr das Ende der geradezu phantastischen Kurssteigerungen gekommen ist und das Niveau langsam abbröckeln dürfte.

Die Kredit Möglichkeiten sind jedenfalls augenblicklich noch sehr große und es erscheint daher die Gewähr gegeben, daß eine ausgesprochen krisenhafte Zerstörung des jetzigen hohen Niveaus nicht befürchtet werden müßte. Zur Zeit werden europäische Gelder bereits in großen Beträgen abgezogen, so daß der Dollarkurs gedrückt ist.”

“However, at present there is no reason to expect a sudden crash of the New York stock exchange. However, it is not impossible that the end of the absolutely amazing price increases has arrived, and [that] the [price] level should slowly crumble. The credit possibilities/conditions are, at any rate, currently very great, and therefore it appears assured that an outright, crisis-like destruction of the present high [sc. price] level should not be feared. At the moment, European funds are already being withdrawn in large amounts, so that the value of the [US] dollar is down.”

Monatsberichte des österreichischen Institutes für Konjunkturforschung, 3. Jahrgang, Nr. 10 (26 October, 1929), p. 182.
Matters are somewhat better if we turn to Hayek’s contribution to the socialist calculation debate, but even here, in my view, his major contribution was showing the inadequacy of Walrasian general equilibrium theory, when that neoclassical theory was used by Hayek’s socialist opponents in their arguments in favour of rational economic planning in a command economy.

But demonstrating the flaws of Walrasian general equilibrium is not what Hayek is really remembered for by his modern apologists.

In the end, it is quite questionable whether Hayek really deserved any Nobel Memorial Prize in economics. But not that this is any great surprise: for Nobel Memorial Prizes generally go to neoclassical economists anyway, whose theory is, at heart, fundamentally wrong.


Hayek, F. A. von, 1931. Prices and Production. G. Routledge & Sons, Ltd, London.

Masters of Money: John Maynard Keynes

This is one part of a three-part BBC documentary called “Masters of Money” (2012). This part deals with John Maynard Keynes, albeit in a rather dumbed down way. But an interesting, popular take on Keynes.

A major failing of the analysis is its failure to note how Keynes’s ideas were quickly transformed into the post-war neoclassical synthesis: it was this neoclassical version of Keynesianism that faced a theoretical and policy crisis during the 1970s stagflation era.

Tuesday, November 6, 2012

Caldwell on Lachmann on Equilibrium Prices

Bruce Caldwell has an anecdote about Ludwig M. Lachmann:
“I first met Ludwig M. Lachmann on February 4, 1982 at the first spring semester meeting of the Colloquium in Austrian Economics at New York University. … Though we had not been introduced, as soon as the goateed man with the twinkling eyes spoke I knew who he was. He started slowly, even haltingly. At first he appeared to ramble, but as he went on an argument unmistakably began to take form. The crucial juncture was signalled by a long, overtly dramatic pause. Then came the main point, spoken forcefully and rapidly, with all r’s rolled, his eyes scanning the seminar table, case established, who could disagree?

During that first meeting I had an exchange with Mario Rizzo about the concept of market-clearing. I argued that though the speed of adjustment problem was an empirical issue, it was not something that could be tested as a general proposition. I drew the implication that one’s view of the rapidity of clearing was a matter of faith, nothing more than a metaphysical assumption, though obviously a crucial one. Lachmann nodded his head vigorously as I was finishing up, which pleased me immensely.” (Caldwell 1991: 140).
While that story does in fact seem to tacitly accept that there is an equilibrium structure of prices and wages that would clear all markets (something that can be doubted), the point of the story is well taken: the belief in the market’s tendency to any such state in rapid price adjustments is mostly “a metaphysical assumption.”

The lesson is also this: those Austrians who posit an equilibrium price structure (with flexible wages clearing the labour market) as the state towards which an economy naturally moves have much more in common with mainstream neoclassicals than they think they do.

Caldwell, Bruce J. 1991. “Ludwig M. Lachmann: A Reminiscence,” Critical Review 5.1: 139–144.

Menger’s Nuanced View on the Origin of Money

Carl Menger’s writings on the origin of money contain a curious, but undeveloped, concession to chartalism.

First, there was this concession in Menger’s 1892 paper:
“It is not impossible for media of exchange, serving as they do the commonweal in the most emphatic sense of the word, to be instituted also by way of legislation, like other social institutions. But this is neither the only, nor the primary mode in which money has taken its origin.” (Menger 1892: 250).
Secondly, in Menger’s revised essay on money, published later in 1909, we have this:
“Commodities that have become generally used intermediaries of exchange, if only within certain geographical boundaries and possibly even only within certain segments of the population of a territory, are called money (livestock money, shell money, salt money, etc.) in scientific usage (not necessarily in everyday life!).

Like other social institutions, the institution of intermediaries of exchange, which serves the common good in the fullest sense of the term, may, as I shall explain later, emerge or be promoted, but also impeded, in its automatic development by the influence of authority (for example, public or religious) and especially by legislation. This manner of emergence of media of exchange, however, is neither the only nor the earliest one. Here, a relation exists similar to that between statute law and common law: media of exchange originally emerged and eventually, through progressive imitation, became generally used not by way of law or agreement but by way of 'custom', that is, through similar actions, corresponding to similar subjective impulses and similar intellectual progress, of individuals living together in society (as the unreflective result of specific individual strivings of the members of society) – a circumstance which subsequently, as with other institutions that arose in like manner, does not rule out, of course, their being established or influenced by government.” (Menger 2002: 33).
It would be a mistake, however, to press these cautious statements too far: Menger remained an advocate of the barter spot trade theory of money’s origins, although he was willing to concede what later Austrians have emphatically denied.

Nevertheless, there is a divide between Menger’s nuanced view of the origins of money and the stridency of Rothbard:
“[sc. Mises’s] Regression Theorem also shows that money, in any society, can only become established by a market process emerging from barter. Money cannot be established by a social contract, by government imposition, or by artificial schemes proposed by economists.” (Rothbard 2009: 61).

Menger, C. 1892. “On the Origin of Money” (trans. C. A. Foley), Economic Journal 2: 238–255.

Menger, C. 1909. “Geld,” in J. Conrad et al. (eds.), Handwörterbuch der Staatswissenschaften (vol. 4; 3rd edn.). Fischer, Jena. 555–610.

Menger, C. 2002 [1909]. “Money” (trans. L. B. Yeager and M. Streissler), in M. Latzer and S. W. Schmitz (eds.), Carl Menger and the Evolution of Payments Systems. Edward Elgar, Cheltenham, UK. 25–108. [N.B. this is a translation of Menger 1909.].

Rothbard, M. N. 2009. The Essential von Mises. Ludwig von Mises Institute, Auburn, Alabama.

Thursday, November 1, 2012

My Posts on the Origin of Money

I have assembled a set of two lists of links and a bibliography below, as follows:
(1) my posts on the origin of money and the debate between David Graeber and Robert P. Murphy;
(2) some external links on the debate between David Graeber and Robert P. Murphy, and
(3) a bibliography on the origin of money.
First, however, I will give a quick summary of Graeber’s view on the origin of money in his recent book (Graeber 2011). It is curious that, in discussion of Graeber’s book, many people cannot even get his arguments right. It is important to note that Graeber does not deny that money in some historical circumstances can emerge from barter between strangers, especially in long distance trade. Graeber cites the cacao money of Mesoamerica and the salt money of Ethiopia as instances of money emerging through barter (Graeber 2011: 75; on Ethiopian salt money, see Einzig 1949: 123–126). Graeber also cites the views of Max Weber (1978: 673–674) and Karl Bücher (1901), who argued that money emerged from barter between different societies, not within societies (Karl Polanyi may also have held a position close to this). What Graeber denies is that the Mengerian or the barter spot trade theory is a universal theory of the origin of money.

Money-less societies are frequently dominated by debt/credit transactions, or “gift exchange,” not by barter spot trades. Even in cases where goods exchange for goods in spot trades, social relations can complicate matters considerably, and historically barter seems to have been prevalent between one community and another, or, that is to say, between people who were strangers and where relationships were implicitly or explicitly hostile (Graeber 2011: 29–30).

While a non-enumerated system of debts/credits or gift exchange might not give rise to money, there is clearly a role for debt in the history of money (Graeber 2011: 40). In the real world, gift exchange and debt/credit arrangements existed long before money, and societies could develop an abstract unit of account in which debt/credit transactions were still the predominant system (Graeber 2011: 40). The use of coinage, when it was developed, could remain uneven and coins scarce.

In a society where debt/credits are the major transaction, IOUs/debts can be transferable and used as a means of payment or medium of exchange. Graeber thinks of an example:
“Say, for example, that Joshua were to give his shoes to Henry, and, rather than Henry owing him a favour, Henry promises him something of equivalent value. Henry gives Joshua an IOU. Joshua could wait for Henry to have something useful, and then redeem it. In that case Henry would rip up the IOU and the story would be over. But say Joshua were to pass the IOU on to a third party—Sheila—to whom he owes something else. He could tick it off against his debt to a fourth party, Lola—now Henry will owe that amount to her. Hence money is born.” (Graeber 2011: 46).
A type of medium of exchange could emerge in theory in this way in small communities, or communities of specific people like merchants where IOUs can be verified. The empirical evidence demonstrates that this is precisely how promissory notes and bills of exchange become a medium of exchange. A kind of debt money can emerge in communities where there exist people willing to accept it or cancel the debt IOUs (Graeber 2011: 74). Graeber notes how for centuries English shops issued their own wood, lead or leather token money as debt money redeemable at the particular merchant’s store (Graeber 2011: 74). Graeber’s eclectic view on the origins of money is expressed in this way:
“Throughout most of history, even where we do find elaborate markets, we also find a complex jumble of different sorts of currency. Some of these may have originally emerged from barter between foreigners: the cacao money of Mesoamerica and the salt money of Ethiopia are frequently cited examples. Other arose from credit systems, or from arguments over what sort of goods should be acceptable to pay taxes or other debts. Such questions were often matters of endless contestation.” (Graeber 2011: 75)
Graeber, however, doubts that local or community debt/IOU money systems can “create a full-blown currency system, and there’s no evidence that they ever have” (Graeber 2011: 47). But this is where Georg Friedrich Knapp’s (1842–1926) chartalist theory of money comes in (see Knapp 1905; Knapp 1973 [1924]). When the state issues IOUs it can do so on a large scale, and then demand the same IOU tokens back as payment of taxes. Graeber notes the use of tally sticks in the Middle Ages: the British exchequer could issue them, and they would circulate as tokens of debt owed to the government (Graeber 2011: 48–49), but also circulate as a medium of exchange within England accepted for payment of taxes (Davies 2002: 146–151). Graeber (2011: 59–62) also refers to the thesis of Grierson on how wergeld-like customs could create a system of measurement of relative values (Grierson 1978: 11; Grierson 1977).

The origins of money, then, lie in different sources, and not simply in a barter origin of money theory.

Graeber also notes how primitive monies (called non-commercial money or social currency) – like shell money in the Americas or Papua New Guinea, cattle money in Africa, bead money, feather money, and so on – are often rarely used to buy everyday items in the societies that use them. Instead, they are employed in social relations like marriages and to settle disputes (Graeber 2011: 60). A commercial money can most probably arise through non-commercial money.

The story of money is thus rather more complex than neoclassical economists or Austrians imagine.

My list of posts on the origin of money and the other links are below:
“Debate on the Origin of Money,” August 25, 2012.

“The Origin of Money in the Digest of Justinian,” August 21, 2012.

“Alfred Mitchell Innes on the Credit Theory of Money,” March 24, 2012.

“A Note on Menger on the Nature and Origin of Money,” July 28, 2012.

“Philip Grierson on the Origin of Money,” March 21, 2012.

“Observations on Non-Commercial Money,” February 18, 2012.

“Money as a Unit of Account and its Origins,” February 11, 2012.

“Quiggin on the Origin of Money,” February 10, 2012.

“David Graeber on Debt and Money, Part 2,” February 9, 2012.

“David Graeber versus Robert Murphy: A Review,” January 24, 2012.

“David Graeber on the Origins of Money,” January 23, 2012.

“Bibliography on the Origins of Money,” January 19, 2012.

“Alla Semenova on the Origins of Money,” January 15, 2012.

“Mises on the Origin of Money,” January 12, 2012.

“The Origins of Money,” January 8, 2012.

“Menger on the Origin of Money,” January 5, 2012.

“Money as Debt,” December 26, 2011.

“David Graeber’s Response to Robert Murphy,” September 9, 2011.

“The Origin of Coinage in Ancient Greece,” April 29, 2011.


Graeber, David, 2009. “Debt: The First Five Thousand Years,”, 20th August.
An early summary of Graeber’s work on debt.

“What is Debt? – An Interview with Economic Anthropologist David Graeber,”, August 26, 2011.
The original interview with Graeber that sparked the debate.

Gene Callahan, “Fiat Currency,” Saturday, August 27, 2011.
A summary of Graeber’s interview that sparked off a debate between Gene Callahan and Robert Murphy.

Robert P. Murphy, “Have Anthropologists Overturned Menger?,” Mises Daily, September 1, 2011.
This is Robert P. Murphy’s response to Graeber’s interview at

Robert Murphy, “David Graeber’s Response to My Article,”, September 8, 2011.
This is a summary of David Graeber’s comments on Robert P. Murphy’s article “Have Anthropologists Overturned Menger?.”

Robert Murphy, “Murphy Replies to David Graeber on Menger and Money,”, September 8, 2011.
This is Murphy’s reply to David Graeber’s comments.

David Graeber, “On the Invention of Money – Notes on Sex, Adventure, Monomaniacal Sociopathy and the True Function of Economics. A Reply to Robert Murphy’s ‘Have Anthropologists Overturned Menger?,’” September 13, 2011.
David Graeber’s final response to Murphy, published on


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B[?], A. R. 1925. “Heiliges Geld: Eine historische Untersuchung über den sakralen Ursprung des Geldes by Bernhard Laum” (Review), Economica 14: 218–222.
N.B. The surname of the author is not listed.

Bell, D. 1991. “Modes of Exchange: Gift and Commodity,” Journal of Socio-Economics 20.2: 155–167.

Bell, S. and J. F. Henry, 2001. “Hospitality versus Exchange: the Limits of Monetary Economies,” Review of Social Economy 59.2: 203–226.

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Davies, J. K. 2001. “Temples, Credit, and the Circulation of Money,” in A. Meadows and K. Shipton (eds.), Money and its Uses in the Ancient Greek World, Oxford University Press, Oxford. 117-128.

Dowd, K. 2001. “The Emergence of Fiat Money: A Reconsideration,” Cato Journal 20.3: 467–476.

Einzig, Paul. 1966. Primitive Money: In Its Ethnological, Historical, and Economic Aspects (2nd edn.), Pergamon Press, Oxford.

Goodhart, C. A. E. 1998. “The Two Concepts of Money: Implications for the Analysis of Optimal Currency Areas,” European Journal of Political Economy 14.3: 407–432.

Graeber, D. 2011. Debt: The First 5,000 Years, Melville House, Brooklyn, N.Y.

Grierson, P. 1977. The Origins of Money, Athlone Press and University of London, London.

Grierson, P. 1978. “The Origins of Money,” Research in Economic Anthropology 1: 1–35.

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Ingham, G. 2006. “Further Reflections on the Ontology of Money,” Economy and Society 36.2: 264–265.

Ingham, G., 2000. “Modern Money,” in J. Smithin, J. (ed.), 2000. What is Money?, Routledge, London and New York.

Innes, A. M. 1913. “What is Money?,” Banking Law Journal May: 377–408.

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