Working Paper: NBER ID: w12189
Authors: Michael Bordo; Harold James
Abstract: The case for monetary simplification and unification has been made since the middle of the nineteenth century. It rests on four principal arguments ;reduced transaction costs; establishing credibility; preventing bad policy in other states; political integration via money. In this paper we argue that the case for monetary integration is becoming increasingly less persuasive. In making our case we posit a different concept of money to the one that underlay the nineteenth century discussions which we term "Newtonian" since it was based on the assumption of a single reference external to the state reflected in the definition of value in terms of precious metals. In the twentieth century, views of money have shifted to a more " Einsteinian" or relativistic conception. Measures of value that move relative to each other are helpful in terms of dealing with large shifts in relative prices that affect different countries very differently. In the current age of globalization, "Einsteinian" money is capable of accommodating shifts that were politically destructive in the " Newtonian" world.
Keywords: No keywords provided
JEL Codes: N20; F33; E42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| shifting monetary paradigms (E42) | diminishing persuasiveness of monetary integration (F36) |
| traditional arguments for monetary integration (F36) | diminishing persuasiveness of monetary integration (F36) |
| Newtonian framework inadequacies (C69) | diminishing persuasiveness of monetary integration (F36) |
| monetary policy frameworks (E63) | economic stability (E63) |
| Einsteinian framework (B59) | better accommodation of large shifts in relative prices (P22) |