Shaking the Invisible Hand: Complexity, Endogenous Money and Exogenous Interest Rates, by Basil John Moore
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Shaking the Invisible Hand: Complexity, Endogenous Money and Exogenous Interest Rates. By Basil John Moore. Palgrave Macmillan, New York, 2006. 556pp., $110.00. ISBN: 1-4039-9946-5. Matı´ as Vernengo University of Utah, USA
Basil Moore’s contributions to monetary economics are deservedly well known. With Nicholas Kaldor, he was instrumental in pointing out that the conventional wisdom, which insisted that money was exogenously determined by the central bank, was fundamentally flawed. This book expands on Moore’s previous work in two ways. First, it suggests that economics deals with complex phenomena. This means that chaos theory and measurement issues become central to understanding realworld economies. Second, it discusses economic growth and open economy issues. Moore argues that economies are complex adaptative systems, and that human history is both complex and chaotic, by which he apparently means that small changes can have large effects. As a result of complexity ‘‘there are no underlying stable regular relationships’’ [p. 4], and economic systems are ‘‘far too complex ever to be successfully modeled’’ [p. 14]. The issues raised by complexity lead to difficulties defining concepts clearly and measurement problems that arise from not understanding the complex nature of economic phenomena. These early chapters on complexity and measurement are not directly connected to the rest of the book, but provide a methodological introduction emphasizing the weakness of conventional macroeconomic analysis. It is true that many economic phenomena are complex and path dependent. However, stable regular macroeconomic relations do exist. Kaldor’s idea of stylized facts introduced simple regularities into economic models. Okun’s Law seems to be a simple regularity that is firmly established. Moreover, the main theoretical ideas defended by Moore are based on simple and stable macroeconomic regularities. Endogenous money suggests a simple relation between money and the level of activity, and demand-led growth, which Moore connects to Thirlwall’s Law (another simple regularity), presumes a simple relationship between growth and productivity growth. The main difference between orthodox and heterodox views concerns causality — in the neoclassical view it runs from money to activity and from productivity to growth; for alternative approaches the causality is reversed. The only discussion of causality in Moore’s book is a brief and critical digression on Granger causality [p. 249]. Moore points out that Granger tests do not test for causality and are not relevant to the question of monetary endogeneity. The analysis of endogenous money is an aggiornamento of his previous work [Moore, 1988]. It deals with inflation targeting and the new consensus in monetary policy, but does not add anything significantly new. If anything, Moore misses the point that the new consensus accepts that money is endogenous and interest rates are exogenous. Moore next provides a critique of some core propositions of mainstream macroeconomics, in par
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