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156

Heroes and Villains: The Role of Central Banks

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King, M. (2016). Heroes and Villains: The Role of Central Banks. In King, M. The End of Alchemy: Money, Banking, and the Future of the Global Economy. W. W. Norton Company, pp. 156-210

163

Eighteenth-century thinkers, such as David Hume and Adam Smith, understood the relationship between the amount of money in circulation and the prices at which goods and services were bought and sold: 'if we consider any kingdom by itself, it is evident, that the greater or less plenty of money is of no consequence, since the prices of commodities are always proportioned to the plenty of money'. In the long run, more money means higher prices. The quantity theory of money, later refined and popularised by the American economists Irving Fisher and Milton Friedman, had been born.

ignoring the trends among individual products + irrational factors but I guess yeah

—p.163 by Mervyn King 3 years, 6 months ago

Eighteenth-century thinkers, such as David Hume and Adam Smith, understood the relationship between the amount of money in circulation and the prices at which goods and services were bought and sold: 'if we consider any kingdom by itself, it is evident, that the greater or less plenty of money is of no consequence, since the prices of commodities are always proportioned to the plenty of money'. In the long run, more money means higher prices. The quantity theory of money, later refined and popularised by the American economists Irving Fisher and Milton Friedman, had been born.

ignoring the trends among individual products + irrational factors but I guess yeah

—p.163 by Mervyn King 3 years, 6 months ago
167

[...] Prices and wages do not adjust instantaneously to clear markets whenever demand and supply are out of balance. Firms change price only irregularly in response to changes in demand; wages adjust only slowly as labour market conditions alter; and expectations are updated only slowly as new information is received. Such 'frictions' or 'rigidities' introduce time lags into the process by which changes in money lead to changes in prices. These lags in the adjustment of prices and wages to changes in demand--so-called 'nominal rigidities'--and lags in the adjustment of expectations to changes in inflation--'expectational rigidities'--generate short-run relationships between money, activity, and inflation. [...]

the folly of viewing economics as this continuous and inherently quantifiable thing (think GDP, supply and demand theory, inflation) when it is anything but, and the choice of what to measure is so incredibly qualitative (is that the right word? political?)

—p.167 by Mervyn King 3 years, 6 months ago

[...] Prices and wages do not adjust instantaneously to clear markets whenever demand and supply are out of balance. Firms change price only irregularly in response to changes in demand; wages adjust only slowly as labour market conditions alter; and expectations are updated only slowly as new information is received. Such 'frictions' or 'rigidities' introduce time lags into the process by which changes in money lead to changes in prices. These lags in the adjustment of prices and wages to changes in demand--so-called 'nominal rigidities'--and lags in the adjustment of expectations to changes in inflation--'expectational rigidities'--generate short-run relationships between money, activity, and inflation. [...]

the folly of viewing economics as this continuous and inherently quantifiable thing (think GDP, supply and demand theory, inflation) when it is anything but, and the choice of what to measure is so incredibly qualitative (is that the right word? political?)

—p.167 by Mervyn King 3 years, 6 months ago
191

[...] But if the assets have genuinely lost value, then the central bank must be careful not to subsidise insolvent undertakings. [...]

this is almost a bromide but really, why does it matter if no one ever finds out? it's all built on trust anyway

(on lenders of last resort)

—p.191 by Mervyn King 3 years, 6 months ago

[...] But if the assets have genuinely lost value, then the central bank must be careful not to subsidise insolvent undertakings. [...]

this is almost a bromide but really, why does it matter if no one ever finds out? it's all built on trust anyway

(on lenders of last resort)

—p.191 by Mervyn King 3 years, 6 months ago