Typography

William Stanley Jevons, who coined the term "double coincidence of wants" A while back I had an interesting conversation with David Andolfatto on his post Evil is the Root of All Money . This is surely one of the more catchy phrases developed by monetary economists, who tend to the less-flowery end of the literary scale. David fleshes out a model that shows how untrustworthiness, or evil (what is called a lack of commitment in the NME literature), can lead to the emergence of money. David finds this interesting because his model doesn't need the absence of a double-coincidence of wants to exist in order to motivate a demand for money. The double-coincidence problem - the unlikelihood that two producing individuals meeting at random would each have goods that the other wants - has historically been the explanation of choice for the emergence of monetary exchange. After all, if one person doesn't want another's goods, she can still transact by accepting some third...

Stephen Williamson suggests here , here , and here that blog readers browse his recent paper, Liquidity, Monetary Policy, and the Financial Crisis: A New Monetarist Approach . Here are some thoughts I had upon reading it. Williamson sets up an imaginary universe in which there are two types of people who live and produce in differing market environments. The various frictions that these two types must bridge in order to purchase each other's production leads to a role for fiat money, and later banks. The first environment is a Walrasian centralized market in which trade is easily executed. The second is a decentralized market. Trade is difficult in the decentralized market because buyers and sellers meet each other in a haphazard and anonymous manner. Those who inhabit the centralized market must trek over to the decentralized market so as to trade for consumption goods. Unfortunately for them, they can't bring the goods they have produced in their centralized market habitat s...

Stephen Williamson had a good post recently in which he noted: Central to Old Monetarism - the Quantity Theory of Money - is the idea that we can define some subset of assets to be "money". Money, according to an Old Monetarist, is the stuff that is used as a medium of exchange, and could include public liabilities (currency and bank reserves) as well as private ones (transactions deposits at financial institutions). Further, Friedman in particular argued that one could find a stable, and simple, demand function for this "money," and estimate its parameters. Lucas does that exercise here, and then uses the estimated money demand function parameters to measure the costs of inflation. What's wrong with that? The key problem, of course, is that the money demand function is not a structural object. Some central bankers, including Charles Goodhart, figured that out. Goodhart's idea is a bit subtle, but there are more straighforward reasons to think that the para...