nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2008‒08‒14
five papers chosen by
Karl Petrick
University of the West Indies

  1. The Optimal Monetary Instrument for Prudential Purposes By Charles Goodhart; Dimitrios Tsomocos; Pojanart Sunirand
  2. Endogenous Money - On Banking Behaviour in New and Post Keynesian Models By Co-Pierre Georg; Markus Pasche
  3. Strangers and Brothers’: The Secret History of Profit, Value and Risk. An inaugural lecture By Toms, Steven
  4. Calculating Profit: A Historical Perspective on the Development of Capitalism By Toms, Steven
  5. The Impossibility of Social Choice and the Possibilities of Individual Values: Political and Philosophical Liberalism Reconsidered By Werner Güth; Hartmut Kliemt

  1. By: Charles Goodhart; Dimitrios Tsomocos; Pojanart Sunirand
    Abstract: The purpose of this paper is to assess the choice between adopting a monetary base or an interest rate setting instrument to maintain financial stability. Our results suggest that the interest rate instrument is preferable, since during times of a panic or financial crisis the Central Bank automatically satisfies the increased demand for money. Thus, it prevents sharp losses in asset values and enhanced asset volatility.
    Date: 2008–08
  2. By: Co-Pierre Georg (Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultät); Markus Pasche (Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultät)
    Abstract: In New Keynesian as well as in Post Keynesian macroeconomic models, money supply is assumed to be endogenous. The reasons for the endogeneity and the role of the financial sector in the supply process, however, are seen very different. In this paper we explicitly derive the behaviour of the banking sector regarding the supply of loans and the demand for reserves from portfolio and liquidity considerations. As a result, the money multiplier as well as the money base are endogenously determined. Although the microeconomics of the bank behaviour is quite simple, credit and money as well as bonds demand depend on policy variables in a non-linear and non-monotonous way.
    Keywords: endogenous money, loans market, bonds market, central banking
    JEL: E51 E44 B22
    Date: 2008–08–12
  3. By: Toms, Steven
    Abstract: [First Paragraphs] As political history is signposted by decisive battles and the rise and fall of great leaders, so the history of finance is marked by speculative booms and busts. From the failure of the futures market in Dutch tulips in the seventeenth century, to the South Sea Bubble of 1720, and more recently the Wall Street crash and, more recently still, the various ‘Black Mondays’, ‘Black Wednesdays’ and so on. These bubbles are characterised by upward speculation that leads prices to depart from some notion of underlying value, followed by a sharp readjustment, marking the re-imposition of the rule of value. The pattern is well illustrated by the ‘dot-com’ boom of 2000. In spite of the misleading signals about value given by financial markets, we are witnessing an increasing dominance of such markets as the sole arbiter of valuation. Not only is this a tautology, but its application has some important and potentially dangerous consequences. Some economists, following the development of the Black-Scholes option pricing model, have gone as far as arguing that volatility itself is a source of value.2 As Bernstein notes, ‘the product in derivative transactions is uncertainty itself’.3 According to this model, inter alia, the greater the risk, the higher the price of the asset. Such attitudes afforded scant protection to the Black Scholes inspired hedge fund,Long Term Capital Management when its losses of $3.75bn shook the world financial system in 1998.
    Date: 2008–06
  4. By: Toms, Steven
    Abstract: The paper introduces the notion of different methods of calculating and analysing profitability as signatures of capitalism at different stages of development. Interactions between the development of the productive forces and the socialisation of capital ownership jointly impact on these signatures, such that profit calculations are historically contingent. These interactions take the identification of capitalism beyond simple associations with the presence or absence of double-entry bookkeeping (DEB), the capital account or return on capital calculations. Profit calculations are implicated in the process of transition from feudalism to capitalism by enabling the private enforcement of profit levels in excess of legally regulated interest rates or through fairly remunerated labour. The modern usage of ROCE is linked to the development of the productive forces and the socialisation of capital ownership.
    Date: 2008–07
  5. By: Werner Güth (Max Planck Institute of Economics, Jena, Strategic Interaction Group); Hartmut Kliemt (Frankfurt School of Finance and Management)
    Abstract: Though the social choice of social institutions or social results is impossible - there is, strictly speaking, no social choice - individual evaluations of social institutions or results trivially are possible. Such individual evaluations can be deemed liberal either because they emphasize political institutions that embody liberal values (political liberalism) or because individuals make up their mind in a specifically "liberal" way of forming ethical judgment (philosophical liberalism). Seen in this light the Paradox of Liberalism is of theoretical or philosophical interest but not a practical problem of political (institutional) liberalism.
    Keywords: Philosophical Liberalism, Political Liberalism, Public Choice, Social Choice
    JEL: B3 B52 D6 D7 D71
    Date: 2008–08–12

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