- Paperback: 462 pages
- Publisher: Liberty Fund (June 1, 1997)
- Language: English
- ISBN-10: 0865971463
- ISBN-13: 978-0865971462
- Product Dimensions: 6.2 x 1.2 x 9.2 inches
- Shipping Weight: 1.6 pounds (View shipping rates and policies)
- Average Customer Review: 2 customer reviews
- Amazon Best Sellers Rank: #1,642,306 in Books (See Top 100 in Books)
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The Fluttering Veil: Essays on Monetary Disequilibrium
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In any event, the book is divided into four sections and I will comment briefly on each of them. Part one is 'Monetary Disequilibrium and its consequences' which is an excellent section, especially the essay 'A Cash Balance Interpretation of Depressions.' The section discusses various aspects of monetarism, and in particular 'monetary disequilibrium.' What he means by this is the following: if people demand to hold more money at the current price of money, that is to say the price level, than actually exists, the price of money must rise, which is to say that the price level must fall, in order to cut off this demand and restore equilibrium in the market for money. It's a very elegant and convincing idea, and it's well presented in the book. This section is unreservedly good.
Section 2 is called 'Monetary Misconceptions', which treats several topics but mainly argues against a Keynesian economist James Tobin, who wrote an article called 'Central Banks as Creators of Money'. The problem is that Tobin was probably correct in this dispute and Yeager was probably wrong, but Yeager's responses are still well worth reading, provided that you read the Tobin article as well. Tobin started the debate by talking about banks: often it was said that due to their ability to create money banks are a unique industry, however Tobin argued against this, along with arguing against a strict interpretation of the money multiplier. In a nutshell, Tobin argued that banks create deposits based on supply and demand, same as any other industry: the spread between the rate they can earn on loans vs. the rate they must pay their depositors determines the extent to which they will desire to create deposits, which are typically considered to be money. Furthermore, money created by banks can be retired by banks if so they wish, it is subject to something of an automatic market process. Yeager argues against Tobin for several basically unconvincing reasons, but due to limitations of space I'll only recommend that you simply read Tobin's article and Yeager's articles and decide for yourself. Besides arguing against Tobin, an unrelated article called 'Inflation, Output, and Unemployment' is excellent.
Section 3 is 'Keynesianism and Other Diversions' and this is once again a good section. Yeager talks a bit about the history of economic thought and about the relationship between monetarism, ration expectations, and new keynesian macroeconomics, as well as some other topics. I don't have much to say about this section, but it's good nonetheless.
Finally, part 4 is 'Avoiding Monetary Disequilibrium' which treats the topic of how to set up the banking system so as to avoid monetary disequilibrium in the future. He favors a system he dubs the BFH system (for Black, Fama, Hall, three economists whose ideas contributed to this). Yeager begins by discussing how ridiculous it is that the supply and demand for money as a medium of exchange changes the price level, which is to say money as a medium of account. He compares this to a situation where the supply and demand for yardsticks were to change the length of a yard. The BFH system would remedy this by having the government define a price index for monetary stability: a 'dollar' would be defined as a unit having enough purchasing power so as to be able to purchase a certain index, while the market would be left alone to provide such money. Government would define the value of a unit of account, and leave the market to provide the units of exchange. After much puzzling over it, I'm not convinced that I entirely understand the proposal, but I am convinced that it isn't a good idea. I can't imagine why separating units of account from units of exchange would be a desirable thing to do, and besides this, it probably wouldn't be feasible for banks to create units of exchange that are not redeemable into units of account, because without redeemability the major incentives for banks to be responsible would be broken. This section is very interesting but possibly the worst of the four.
Although I've spent a fair number of words complaining about things I disagree with in the book, that's only because most of the book is very good. Yeager is a very clear author and his work is well worth reading; the price is right and you get a nice foreword by George Selgin. If you do enjoy this work and wonder were to go after reading this, I would suggest that for reading more about his monetarist theory Friedman, Warburton, Brunner, and Meltzer are the commonly recommended authors, while for his ideas about banking and currency reform Selgin (who edited this book and wrote the foreword), Lawrence White, and Kevin Dowd are highly recommended. David Horowitz wrote a book called 'Microfoundations and Macroeconomics' which combines the two ideas. I must note that I haven't read all of the books I've mentioned. In any event, if you're at all interested in monetary theory, macroeconomics, or currency reform, I would say that buying the book is a no-brainer.