An inquiry into the Ramsey-Hotelling connection

Ramsey’s 1928 Ramsey, F. P. 1928. “A Mathematical Theory of Saving.” Economic Journal 38 (152): 543–559. doi:10.2307/2224098[Crossref] , [Google Scholar] paper on saving and Hotelling’s 1931 article on exhaustible resources are considered to be two seminal contributions in economic dynamics. They have been associated because of their temporal proximity, use of the calculus of variations, and because of Hotelling’s citation of Ramsey. This connection however needs to be precisely investigated and characterized. On the basis of archival material, this paper shows that, on the interpersonal and theoretical ground, the connection is quite thin, but that significant parallels are found in Ramsey’s and Hotelling’s expectations with mathematical economics for the progress of science and for informing public decision.     

A Simple Model of Entrepreneurship for Principles of Economics Courses

The critical roles of entrepreneurs in creating, operating, and destroying markets, as well as their importance in driving long-term economic growth are still generally either absent from principles of economics texts or relegated to later chapters. The primary difficulties in explaining entrepreneurship at the principles level are the lack of a universally accepted definition, a plausible explanation of the demand for entrepreneurship, and a diagram that summarizes the impact of entrepreneurship on market equilibrium and growth—a definition, a story, and a picture. This article discusses how the notion of the stationary state associated with Schumpeter (1911 Schumpeter, J. A. 1911/1983. Theory of economic development., Cambridge, MA: Harvard University Press.  [Google Scholar]/1983), Knight (1921 Knight, F. H. 1921/1971. Risk, uncertainty and profit, Chicago: University of Chicago Press. [Crossref] , [Google Scholar]/1971), and Weber (1930 Weber, M. 1930/2002. The Protestant ethic and the spirit of capitalism, New York: Scribner's.  [Google Scholar]/2002) can provide a framework for integrating the entrepreneur into the early part of principles of economics courses.     

Adam Smith on lotteries: an interpretation and formal restatement

The paper concerns a neglected aspect of the Wealth of Nations (with the notable exception of D. Levy 1999 Levy, D. M. 1999. “Adam Smith’s Katallactic Model of Gambling: Approbation from the Spectator.” Journal of the History of Economic Thought 21 (1): 81–91. doi:10.1017/S1053837200002868.[Crossref] , [Google Scholar]), dealing directly with decision under risk. In a few pages from book I, chapter 10, Adam Smith explicitly named “lotteries” various objects of choice (possible occupations, or investment opportunities, for instance) and provided an analysis which standard expected utility glasses would hardly fit. Taking this into account allows a better understanding of the part played by typical characters like the “projector” or the “sober man”, in such matters as Smith’s conception of entrepreneurship or of the credit market. The use of some modern concepts in decision analysis (inverse stochastic dominance, rank dependent utility, prudence toward risk), is a means to show the existence, in Smith’s work, of an original theory from decision under risk, where his analysis of lotteries in the Wealth of Nations is consistent with statements from his moral philosophy on asymmetric sensitivity to gains and losses and to the regulating part played by the impartial spectator.     

Bank liquidity risk: From John Law (1705) to Walter Bagehot (1873)

Abstract

By granting credit and issuing money, banks take a liquidity risk - that is, the risk of being unable to reimburse its notes in coins. Five different explanations of a bank liquidity crisis have been provided by different authors, since John Law and up to Walter Bagehot. First, according to Law (1703) and Steuart ([1767] [1998]), the distinction between money of account (the pound sterling) and money of payment (the guinea) may induce a bank run. Second, according to Cantillon (1730), Hume ([1752 Goschen, G. J., 1861. The Theory of the Foreign Exchanges. London; Effingham Wilson, Royal, 1861. French edition, Théorie des changes étrangers, Librairie Guillaumin et C^ie Paris, 1892. 1861. [Google Scholar]] 1972), Ricardo (1810-1823) and the Currency School (1837-1858), the bank reserve becomes insufficient as a consequence of a diminishing value of money allied with over issues. Third, according to Thornton ([1802 Skaggs, N. T., 2010b. "For the love of truth: Henry Thornton's stance in the bullion committee debates. 2010 meeting of the History of Economics Society, Syracuse". 2010b. [Google Scholar]] 1939, 1991 Skaggs, N. T., 2010b. "For the love of truth: Henry Thornton's stance in the bullion committee debates. 2010 meeting of the History of Economics Society, Syracuse". 2010b. [Google Scholar]) and the Banking School (1840-1857), it can occur as a consequence of a falling exchange rate that is not linked with over issues. Fourth, according to Smith (1776) and the Banking School, discounting of fictitious bills, by decreasing the shareholders' funds, leads to bank illiquidity. Lastly, according to Thornton ([1802 Skaggs, N. T., 2010b. "For the love of truth: Henry Thornton's stance in the bullion committee debates. 2010 meeting of the History of Economics Society, Syracuse". 2010b. [Google Scholar]] 1939, 1991 Skaggs, N. T., 2010b. "For the love of truth: Henry Thornton's stance in the bullion committee debates. 2010 meeting of the History of Economics Society, Syracuse". 2010b. [Google Scholar]) and Bagehot (1873), the liquidity crisis is a consequence of bank panics: a "flight" to money for Thornton, a "flight" to credit for Bagehot. The analysis of these five different explanations sheds new light on classical monetary controversies.     

Rethinking the Foundation of the Original Institutional Economics Policy and Reform Program: Reactions to Thomas C. Leonard’s “Illiberal Reformers”

John R. Commons, among other original institutional economists, argued for the interests of the common people against the power of vested interests in politics and business. Against this backdrop, a new book by Thomas C. Leonard contends that, in fact, these same economists were actually “illiberal” and only promoted the interests of certain groups, such as Anglo-Saxon men, and were against the progression of minority populations, women, or the disabled. But Leonard’s argument that these economists were “illiberal,” and that their entire reform program related to the role of government in the economy and the creation of the administrative state, is essentially defunct. As Leonard (2016 Leonard, Thomas C. Illiberal Reformers: Race, Eugenics and American Economics in the Progressive Era. Princeton, NJ: Princeton University Press, 2016. [Google Scholar], xiv) writes in the prologue, “expertise in the service of the administrative state, what progressives call social control, has survived the discredited notions once used to uphold it.” We respond to Leonard’s book by offering a direct critique of the arguments he makes. We argue that Leonard — at least partially — takes the founders’ view on these issues out of context, and that even where some of their views would be refused by today’s institutional economists, it does not mean that the entire reform project is rejected.     

Adolphe Quetelet,the average man and the development of economic methodology *

Abstract

Quetelet's contribution to statistics has received adequate attention in Stigler (1986 Stigler, S. M. 1986. The History of Statistics. The Measurement of Uncertainty before 1900, Cambridge & London, MA: Belknap Press of Harvard University Press.  [Google Scholar], 1999 Stigler, S. M. 1999. Statistics on the Table. The History of Statistical Concepts and Methods, Cambridge & London, MA: Harvard University Press.  [Google Scholar]) and Porter's (1986) seminal works on the history of that scientific discipline. 24 24 See also Westergaard (1932 Westergaard, H. 1932. Contributions to the History of Statistics, London: King & Son.  [Google Scholar]: 167–70), Klein (1997 Klein, J. 1997. Statistical Visions in Time. A History of Time Series Analysis 1662–1938, Cambridge: Cambridge University Press.  [Google Scholar]: 122–31). Our contribution investigates Quetelet's influence on economic methodology. Other scholars have already investigated his influence on econometrics and empirical economics (Morgan 1990 Morgan, M. S. 1995. The History of Econometric Ideas, Cambridge: Cambridge University Press. [1990] [Google Scholar], Stigler 1999 Stigler, S. M. 1999. Statistics on the Table. The History of Statistical Concepts and Methods, Cambridge & London, MA: Harvard University Press.  [Google Scholar]), but we argue that his influence on theoretical economics should be considered significant as well. We devote attention to Quetelet's concept of the ‘average man’. For this purpose we briefly summarize Quetelet's methodology and examine the evolution of his ideas as expressed in his published works. We then investigate his influence on Jevons's ‘calculus of pleasures and pains’ and on the statistical investigations of the German historical school. We argue that the history of statistics, and especially Quetelet's contribution, should not be neglected by historians of economic thought as it provides important insights into the development of economic methodology.     

Introduction to the Special Issue: Subterranean Geopolitics

ABSTRACT

Recent scholarship in political geography and allied disciplines such as Anthropology and Architecture has used registers such as the elemental and volumetric to explore the calculative, material, technical, and atmospheric interventions in, on, through and beneath the earth’s surface. In this special issue, our contributors engage in a ‘subterranean turn’, as they drill down, dive into, travel through and speculate with underground and underwater domains. Although varied in their geographical environments and locales, and diverse in their time-frames, the papers speak to four themes that constitute a ‘subterranean geopolitics.’ First, the subterranean is conceptualised as volume with distinct material qualities including height, pressure, depth and shape. There are multiple undergrounds on offer. Second, the subterranean is integral to nation-state building and geopolitical strategies of control, enclosure and exclusion. Third, there is evidence of and for subterranean infrastructures aplenty. States and other actors want to design, experiment and plan with the underground and underwater environments. Finally, the subterranean is never divorced from calculative, legal and technical regimes of regulation, and the cultivation of expertise – scientific, military, engineering – is a crucial element in these contributions to subterranean geopolitics. Taken together, the nine papers in this special issue offer a rich array of case studies including the nineteenth-century volcanic eruption in the Mediterranean (Hawkins 2018 Hawkins, H. 2018. A volcanic incident’: Towards a geopolitical aesthetics of the subterranean. Geopolitics. online published 25th September 2018. doi:10.1080/14650045.2017.1399877.[Taylor & Francis Online] , [Google Scholar]), subterranean nationalism in the South Atlantic (Benwell), lead mining in nineteenth-century English Peak District (Endfield and Van Lieshout 2019 Endfield, G., and C. Van Lieshout. 2019. Water and vertical territory: Teh volatile and hidden historical geographies of Derbyshire’s lead mining soughs, 1650s–1830s. Geopolitics. online published 9th October 2018. doi:10.1080/14650045.2018.1486299.[Taylor & Francis Online] , [Google Scholar]), a transnational gas pipeline running through Italy (Barry and Gambino 2019 Barry, A., and E. Gambino. 2019. Pipeline geopolitics: Subaquatic materials and the tactical point. Geopolitics. online published 14th March 2019. doi: 10.1080/14650045.2019.1570921.[Taylor & Francis Online] , [Google Scholar]), subterranean security in Israel/Palestine (Slesinger 2019 Slesinger, I. 2019. A cartography of the unknowable: Technology, territory and subterranean agencies in Israel’s management of the gaza tunnels. Geopolitics. online published 8th February 2018. doi:10.1080/14650045.2017.1399878.[Taylor & Francis Online] , [Google Scholar]), natural gas infrastructure (Forman 2019 Forman, P. 2019. Security and the subsurface: Natural gas and the visualisation of possibility spaces. Geopolitics. online published 17th October 2018. doi:10.1080/14650045.2018.1513918.[Taylor & Francis Online] , [Google Scholar]), deep sea mining off Papua New Guinea (Childs 2019b Childs, J. 2019b. Extraction in four dimensions: Time, space and the emerging geo(-)politics of deep-sea mining. Geopolitics. online published 14th June 2018. doi:10.1080/14650045.2018.1465041.[Taylor & Francis Online] , [Google Scholar]), US military planning in and under Greenland’s inland ice (Bruun 2018 Bruun, J. 2018. Invading the whiteness: Science, (sub)terrain, and US militarisation of the Greenland ice sheet. Geopolitics. online published 17 November 2018. doi:10.1080/14650045.2018.1543269.[Taylor & Francis Online] , [Google Scholar]), and managing the shipping routes of the English Channel (Peters 2019 Peters, K. 2019. Deep routeing and the making of ‘Maritime Motorways’: Beyond surficial geographies of connection for governing global shipping. Geopolitics. online published 1st February 2019. doi:10.1080/14650045.2019.1567499.[Taylor & Francis Online] , [Google Scholar]).     

Money and totality: A review essay

Moseley’s (2016 Moseley, F. 2016. Money and Totality: A Macro-Monetary Interpretation of Marx’s Logic in Capital and the End of the Transformation Problem. Leiden: Brill Publishers. [Google Scholar]) Money and Totality focuses on two important issues: (a) the nature and significance of Marx’s notion of the “circuit of money capital” and (b) the solution to the “transformation problem”. The former question, in particular, makes this book important not only for Marx specialists but also for other dissenting economists. Recall that in writings before the General Theory Keynes (1933a, 1933b), in particular, made allusion to the Marxian circuit via the concept of the monetary theory of production. However, these references did not survive in the published version in 1936. Nor was Keynes at all confident on this topic in debate the following year. It is therefore important to both Marx scholars and other heterodox economists to inquire exactly how the Marxian circuit was supposed to work. A starting point is to write out the scheme from Capital Vol. 2 (Marx, 1885/1976 Marx, K. 1885/1976. Capital: Vol. II. London: Penguin Books. [Google Scholar]) in full, M – C?…?P … C’ –?M’, and try to explain what the magnitudes (M’ – M) and (C’ – C), are supposed to represent. This is indeed one of Moseley’s main tasks in this thought-provoking book.     

Second contribution to the ENE critique: Reply to Davidson,part 1

On first encounter, the ergodic/nonergodic (ENE) approach has apparent plausibility. Although concerned by some of its problems for many years, it was only after more concentrated reflection on both its parts and their combinations that I became aware of its manifold deficiencies, some of which I outlined in my previous critique (O’Donnell, 2014 ———. “A Critique of the Ergodic/Nonergodic Approach to Uncertainty.” Journal of Post Keynesian Economics, 2014, 37 (2), 187–209.[Web of Science ®] , [Google Scholar]). In this paper, facilitated by Davidson’s (2015b ———. “A Rejoinder to O’Donnell’s Critique of the Ergodic/Nonergodic Explanation of Keynes’s Concept of Uncertainty.” Journal of Post Keynesian Economics, 2015b, 38, 1–18.[Taylor & Francis Online], [Web of Science ®] , [Google Scholar]) rejoinder, these criticisms are deepened, broadened, and strengthened. Because the debate deals with fundamental matters in several disciplines, a considerable amount of investigation, unpacking, and logical dissection is required to clarify the argumentation beneath the compressed and seemingly smooth surface of the ENE position. For this reason, my reply is divided into two parts. This contribution primarily examines the central role of framing in ENE arguments, and clarifies the various misunderstandings and misrepresentations to which it leads. The subsequent contribution provides more detailed discussion of mathematical, stochastic, and methodological issues.     

Economic class and the distribution of income: a time-series analysis of the UK economy, 1955–2010

This paper contributes to our understanding of the determinants and dynamics of surplus-value using quarterly UK data, 1955–2010, and the Johansen (1988 Johansen, S. 1988. Statistical analysis of cointegrated vectors. Journal of Economic Dynamic and Control, 12: 231–54. [Crossref], [Web of Science ®] , [Google Scholar], 1991 Johansen, S. 1991. Estimation and hypothesis of cointegration vectors in Gaussian vector autoregressive models. Econometrica, 59: 1551–80. [Crossref], [Web of Science ®] , [Google Scholar]) cointegration and vector error correction model (VECM). A model is introduced to define this Marxian concept, before we explain distribution, paying attention to three forces that are traditionally seen as drivers of power in this struggle: (i) working class militancy; (ii) the size of the ‘reserve army’ of the unemployed; and (iii) political party. Our results demonstrate the ongoing relevance of Marxian economics in providing an alternative, robust and significant explanation of distribution in the post-war UK economy.     

Sustainability of external debt: further evidence from non-linear framework

This study investigates sustainability of external debt under a two-step non-linear framework. The first step uses a general linearity test proposed by Harvey and Leybourne (2007 Harvey, David I. and Leybourne, Stephen J. 2007. Testing for time series linearity. Econometric Journal, 10: 149–165. [Crossref], [Web of Science ®] , [Google Scholar]) to determine the linearity property of external debt. The second step applies a non-linear ADF unit root test proposed by Kapetanios, Shin, and Snell (2003 Kapetanios, G., Y. Shin, and A. Snell. 2003. Testing for a unit root in the nonlinear STAR. Journal of Econometrics 112: 359–79.  [Google Scholar]) on the non-liner processes and the linear ADF test on the linear processes to examine the sustainability of external debt. The analysis of 36 debt and 55 current account ratios identifies strong evidence of non-linearity and sustainability. The results indicate superior performance of the non-linear unit root test over the ADF test in determining the stationary property of the data.     

Globalization and the effects of changes in functional income distribution on aggregate demand in Germany

Germany has experienced a period of extreme nominal and real wage moderation since the mid‐1990s. Contrary to the expectations of liberal economists, this has failed to improve Germany’s mediocre economic performance. However, Germany is now running substantial current account surpluses. One possible explanation for Germany’s disappointing performance is found in Kaleckian theory, which highlights that the domestic demand effect of a decline in the wage share will typically be contractionary, whereas net exports will increase (Blecker 1989 Blecker, R. 1989. International competition, income distribution and economic growth. Cambridge Journal of Economics, 13: 395–412. [Web of Science ®] [Google Scholar]). The size of the foreign demand effect will critically depend on the degree of openness of the economy. This paper aims at estimating empirically the demand side of a Bhaduri and Marglin (1990 Bhaduri, A. and Marglin, S. 1990. Unemployment and the real wage: The economic basis for contesting political ideologies. Cambridge Journal of Economics, 14: 375–93. [Crossref], [Web of Science ®] [Google Scholar]) type model for Germany. The paper builds on the estimation strategy of Stockhammer, Onaran, and Ederer (2009 Stockhammer, E., Onaran, Ö. and Ederer, S. 2009. Functional income distribution and aggregate demand in the Euro area. Cambridge Journal of Economics, 33(1): 139–59. [Crossref], [Web of Science ®] [Google Scholar]) and Hein and Vogel (2008 Hein, E. and Vogel, L. 2008. Distribution and growth reconsidered – empirical results for six OECD countries. Cambridge Journal of Economics, 32: 479–511. [Crossref], [Web of Science ®] [Google Scholar], 2009 Hein, E. and Vogel, L. 2009. Distribution and growth in France and Germany – single equation estimations and model simulations based on the Bhaduri/Marglin‐model. Review of Political Economy, 21(2): 245–72. [Taylor & Francis Online] [Google Scholar]). The main contribution lies in a careful analysis of the effects of globalization. Since Germany is a large open economy by now it is a particularly interesting case study.     

Underground Economy,Evasion and Inequality

Economic theory is paying increasing attention to a non-observed economy (NOE) and its causes. Recently, a couple of works (Rosser et al., 2000 Rosser, J. B., Rosser, M. V. and Ahmed, E. 2000. Income inequality and the informal economy in transitions economies. Journal of Comparative Economics, 28(1): 156–171.  [Google Scholar], 2003 Rosser, J. B., Rosser, M. V. and Ahmed, E. 2003. Multiple unofficial economy equilibria and income distribution dynamics in systemic transition. Journal of Post Keynesian Economics, 25(3): 425–447. [Web of Science ®] , [Google Scholar]) have claimed that there is a positive relationship between income inequality and the size of NOE. This supposed relationship is not so clear and deserves in-depth analysis. There is a crucial aspect that has been completely avoided in these studies: income inequality is mainly measured using ‘regular’ incomes and this fact could lead to some bias. The existence of a certain size of NOE implies some income evasion that can affect the inequality indexes used in the study of the relationship between NOE and inequality. Including the regional share of NOE in a wage equation, I find that, in the specific case of the Italian private sector employees, the income evasion attached to NOE tends to reduce inequality measured by regular wages statistics.     

Multiple product qualities in monopoly: Sailing the RMS Titanic into the economics classroom

In this pedagogical contribution the authors extend the traditional three-class tariff employed in the French passenger railway system with the more resonant story of the service quality variations associated with the three passenger classes of the ill-fated RMS Titanic. In doing so, they provide economics instructors with an opportunity to integrate the well-known motion picture Titanic (Cameron and Landau 1997 Cameron, J., and J. Landau. 1997. Titanic. Los Angeles: 20th Century Fox, Paramount Pictures, and Lightstorm Entertainment. [Google Scholar]) into the teaching of economics. This article provides instructors with resources that can be used to link historical and modern travel examples of price discrimination in order for students to reach a “deeper understanding of course concepts” (Salemi 2002 Salemi, M. K. 2002. An illustrated case for active learning. Southern Economic Journal 68 (3): 721–31.[Crossref], [Web of Science ®] , [Google Scholar], 725).     

Ownership herding and informational herding

This article takes as its point of departure the herding model of Bikhchandani et al. (1992 Bikhchandani, S., Hirshleifer, D. and Welch, I. 1992. A theory of fads, fashion, custom, and cultural change as informational cascades. Journal of Political Economy, 100: 992–1026. [Crossref], [Web of Science ®] , [Google Scholar]). We extend earlier experimental evidence to distinguish between informational herding, as in the model, and ownership herding, an alternative explanation for observed behaviour.     

Inequality,financialization, and economic decline

The objective of this article is to argue that the labor productivity slowdown experienced in recent years by several advanced countries can be explained, following a Kaldorian-Classical approach, by a weak gross domestic product (GDP) performance and by a decline in the wage share. Moreover, drawing inspiration from recent post Keynesian literature, the authors identify the ongoing worsening in income equality and the increase in the degree of financialization as other major explanatory factors of sluggish productivity. The article will provide a brief literature review concerning nonmainstream attempts to endogenize labor productivity, beginning from the famous Verdoorn-Kaldor law (Verdoorn, 1949 Verdoorn, P.J. “Fattori che Regolano lo Sviluppo della Produttività del Lavoro.” L’Industria, 1949, 1, March, 3–10. [Google Scholar]) and the Kaldor technical progress function (Kaldor, 1961 Kaldor, N. “Capital, Accumulation and Economic Growth.” In F.A. Lutz and D.C. Hague (eds.), The Theory of Capital. New York: St. Martin’s Press, 1961, 177–222.[Crossref] , [Google Scholar]) and including Sylos Labini’s productivity equation (Sylos Labini, 1984 Sylos Labini, P. The Forces of Economic Growth and Decline. Cambridge, MA: MIT Press, 1984. [Google Scholar], 1999 —. “The Employment Issues: Investment, Flexibility and the Competition of Developing Countries.” BNL Quarterly Review, 1999, 52 (10), 257–280. [Google Scholar]). The authors will then discuss how labor flexibility and shareholder value orientation, one of the main aspects of financialization, can negatively affect equality and labor productivity. Finally, they propose an extended version of the Sylos Labini’s equation, where productivity growth is claimed to depend positively on GDP rate of growth and the wage share, and negatively on income inequality and financialization. They submit to empirical scrutiny their extended productivity equation; the results of their estimations provide support to their theoretical argument.     

Hayek and the General Theory ∗

Abstract

Hayek did not review the General Theory, but he criticized it in Profits, Interest and Investment (1939 Hayek, F. A. 1939. “Profits, interest and investment”. In Profits, Interest and Investment, London: Routledge & Sons.  [Google Scholar]) and in part IV of The Pure Theory of Capital (1941 Hayek, F. A. 1941. The Pure Theory of Capital, Chicago: The University of Chicago Press.  [Google Scholar]). First, he showed that only exceptionally does greater consumption favour investment and employment. Second, he rejected Keynes's liquidity preference and maintained that only in an ‘extreme case’ might it be said that Keynes's theory of the rate of interest is valid. Although he correctly identified the gist of Keynes's theoretical innovation, his criticisms were already implicitly answered in the General Theory.     

Hidden links in the warranted rate of growth: the supermultiplier way out

Post Keynesian models consider growth to be demand-led – a logical consequence of Keynes's principle of effective demand. After Harrod's seminal paper in 1939 Harrod, R. F. 1939. An essay in dynamic theory. Economic journal, 49, 14–33.[Crossref], [Web of Science ®] , [Google Scholar] they try to unearth the hidden variables that might allow the adaptation of the warranted rate, determined from the supply side, to demand-growth expectations that supposedly have an autonomous source. The purpose of this paper is to show that an investment function based on the accelerator and integrated in a supermultiplier is able to shape the warranted rate in consonance with the autonomous trend. The supermultiplier reveals itself as a stable and stabilising mechanism when demand is split into permanent and transient. Hopefully the paper will build bridges with other Keynesian, Kaleckian and Sraffian strands that have so far dismissed the supermultiplier solution because of its apparently inherent instability.     

Banking theories and macroeconomics

Mainstream models that allow for financial operations are characterized by the understanding of banks as intermediaries of outside money (IOM). This approach to banks became dominant thanks to a peculiar rhetorical device by Tobin (1963 Tobin, J. 1963. “Commercial Banks as Creators of ‘Money’.”Paper 205. New Haven, CT: Cowles Foundation. [Google Scholar]). In recent years, however, this understanding is being increasingly questioned and an old view of banks as originators of inside money (OIM) is being reconsidered. The present article highlights the fundamental differences of these alternative doctrines from a money supply perspective and provides a simple theoretical argument to consider the limits of a point of view à la Tobin and regard the OIM banking theory more general than the IOM theory.     

Comment on Johnson’s creating dimensional stock-flow inconsistency in Binswanger’s model

Binswanger (2009 Binswanger, M. 2009. “Is There a Growth Imperative in Capitalist Economies? A Circular Flow Perspective.” Journal of Post Keynesian Economics 31:707–727. doi:10.2753/pke0160-3477310410.[Taylor &; Francis Online], [Web of Science ®] , [Google Scholar]) constructed a model of a pure credit money economy with production to demonstrate the existence of growth imperative in such economies. This model entails a misspecification because money may disappear from the economy at the alleged minimal steady state growth rate (Gilányi 2015 Gilányi, Z. 2015. “A Brief Note on Mathias Binswanger’s Model.” Journal of Post Keynesian Economics 37:590–596. doi:10.1080/01603477.2015.1049927.[Taylor &; Francis Online], [Web of Science ®] , [Google Scholar]). Johnson (2015 Johnson, R. 2015. “Capitalism’s Growth Imperative: An Examination of Binswanger and Gilányi.” Journal of Post Keynesian Economics 37:597–622. doi:10.1080/01603477.2015.1049928.[Taylor &; Francis Online], [Web of Science ®] , [Google Scholar]) attributes this inconsistency to the confusion between the stock of outstanding loans at the end of period and the flow of loans taken during the period; that he calls dimensional stock-flow inconsistency. On the grounds of this criticism he modifies some flows to eliminate the problem raised by Gilányi. Binswanger (2015 Binswanger, M. 2015. “The Growth Imperative Revisited, a Rejoinder to Gilányi and Johnson.” Journal of Post Keynesian Economics 37:648–660. doi:10.1080/01603477.2015.1050333.[Taylor &; Francis Online], [Web of Science ®] , [Google Scholar]) omits this criticism because it is a simple misinterpretation of his model; rather he explains the inadequacy of Johnson’s specification of flows. Doing so, he makes believe that there is still an unsettled debate on whether to treat loans as stocks or as flows in his model. This note demonstrates that both model specifications are dimensionally stock-flow consistent. Hence, Johnson’s criticism is just a narrative behind the rationale of altering flows in the model; the controversy is not on dimensional stock-flow inconsistency but on the logically coherent specification of the magnitude of flows in the model.