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The high level of the Napoleonic military and financial threat concentrated the minds of different interests in Britain, ensuring broad cooperation. This enabled the government to tax the rich without serious resistance, thus furnishing the basis of war finance. Loans came from the City of London, which worked closely with the government. Contracts with contractors were generally well administered. Naval superiority enabled convoys to protect and maintain trade, and particularly to obtain specie from Mexico, much needed by Wellington’s armies in the Peninsula as well as for subsidies for continental powers. For the last two years of the war, the government had to deploy the talent and energy of Nathan Meyer Rothschild to ensure that the British army on the continent was paid. Despite periods of extreme political stress, financial confidence was never broken. Parts of industry thrived, trade flourished, infrastructure investment continued. The British economy finished the war in a healthy state, although the economic impact of financing the war had very long-term political effects.
In the 1950s and 1960s unemployment averaged about 2 per cent. The lowest level of unemployment in the last twenty years was double that and long term unemployment, virtually unknown in the 1950s and 1960s, has been a severe problem. In each period there were two major slumps. We examine the progress of each slump and macroeconomic policy responses in each case, in order to search for reasons for this contrast. The priority given to minimising unemployment rather than restraining inflation is the most important difference between the two periods. Other major principles stand out, the most important of which are that in response to a downturn a fiscal policy stimulus is essential and must play the major part of any response; and that implementation must be swift and then followed up by further measures if necessary.
This article focuses on the role of unionised members of parliament. While unions have a direct effect on the labour market via wage negotiations, they often also take part in political debates. In many countries, significant shares of the members of parliament are also members of a trade union. However, up to now little empirical evidence is available on the extent to which unionised members of parliament try to achieve union-specific goals and thereby influence the macroeconomic conditions of an economy. A recent study for Germany comes to the conclusion that union members in the Bundestag cannot be seen as the parliamentary arm of the trade unions. However, we present contradicting empirical results by showing that, in Germany at least, the degree of unionisation of parliamentary members has a negative impact on economic growth and increases inflation, while unemployment remains unaffected.
This is an edited version of a lecture by economist and former Australian Treasury Secretary (2001–2011) Dr Ken Henry, delivered at a Colloquium in honour of Professor J.W. Nevile, held at the University of New South Wales on 10 October 2012. Taking a practitioner’s perspective, the article surveys the management of the Australian economy from the 1970s to the present, with a focus on the reasons Australia escaped the global financial crisis of 2008 and the lessons for macroeconomic policymakers to be drawn from that experience. The author concludes that macroeconomic policy practitioners have to think deeply about microeconomic connections and the potency of different instruments in addressing shocks with different sources. They also have to deal with considerable uncertainty. The global financial crisis demonstrated forcefully that there is no separation between macroeconomics, financial system stability, prudential regulation, micro-level incentive structures and market efficiency.
Money is created by the banking system issuing liabilities against itself. Under a fiat money system, nothing of intrinsic value backs the money supply. Viability of the system depends on shared faith. Central banks issue liabilities in the form of currency and deposits held by commercial banks in exchange for acquiring assets in the form of domestic government securities, foreign securities, or loans to commercial banks. These central bank liabilities constitute the monetary base. Commercial banks issue liabilities in the form of demand deposits held by the public in exchange for making loans. Commercial banks are constrained in money creation by the need to hold reserves with the central bank at a required ratio relative to demand deposits. The central bank must manage growth in the monetary base to maintain economic balance: too slow keeps the economy from performing at its potential while too fast causes inflation to rear up. To keep the economy on an even course, the monetarist school, led by Milton Friedman, advocates steady growth in the money supply. A pattern of inflation falling with slowing money growth shows up for Emerging East Asia between the 1990s and the 2000s.
The year 1720 witnessed the world’s first international financial crisis. Instead of retelling the standard narrative that focuses on John Law and his System, this chapter uses the records of the stock speculator James Brydges during the Mississippi and South Sea Bubbles to illustrate the different capacity for impunity in the 1720 crisis. Changes in impunity were due to the expansion in the complexity of finance, and the fraught process of trying to establish central banks as the main institutional form of immune actors in that new complex financial world. The financial bubbles of 1720 were connected by flows of capital, information, and personnel, which were beyond the capacity of either the French or the British government to regulate. For the first time, financial instruments and techniques existed, which were beyond the understanding of the educated amateur and were powerful enough to provoke wide-ranging economic disorder.
What determines the strength of the relationship between money growth and inflation? A large literature suggests that it has weakened since the 1980s, without a definitive explanation of the cause. I explore how population age structure explains changes in the pass through of money growth rates to inflation. I show that the quantity theory of money holds over long time horizons, with sizable estimates of the impact of money growth on inflation in the short to medium term. Various measures of population age structure have significant impact on the strength of this relationship. These demographics account for an increase in the transmission of money growth to prices in the 1970s and a weakening throughout the great moderation. The baby boomer cohort, now in the age groups around retirement, may exert upward pressure on this money transmission to prices at present, with ambiguous implications in the future as low fertility and rising longevity persist.
This chapter begins by noting the key ingredients in Akerlof and Shiller’s bestseller Animal Spirits but goes on to cover a far wider range of macroeconomics issues, including a detailed coverage of Minsky’s “financial instability hypothesis” that prefigures their work. After examining alternative theories of how speculative markets work and discussing herding behavior via both information and decision rule cascades, the chapter considers Keynesian view of animal spirits in relation to liquidity preference, leading to a discussion of Katana’s work on the impact of consumer confidence on discretionary spending. Next comes analysis of saving behavior in relation to innovative mortgage products and the impact of evolving bank lending rules on housing affordability. After considering Minsky’s work, material from earlier chapters is used to provide new perspectives on involuntary unemployment, inflation, exchange rate determination and the importance of non-price factors in the determination of international trade (with a discussion of the limited ways in which exchange rates shape trade). Finally, behavioral analysis of decision-making is applied to the making of macroeconomic policy.
This chapter develops and tests hypotheses about possible influences that lie outside national borders. There are many good reasons to expect that domestic factors are not the sole determinants. We lay out a theoretical framework that systematically catalogues most of the possible international hypotheses: exogenous shocks and endogenous networks such as those linking neighbors, allies, and colonizers and colonies. We then test selected hypotheses about exogenous shocks and contagion – the spread of democracy outcomes from country to country through various international networks. Surprisingly, contagion at first appears to be real but so small that it could be ignored when studying domestic influences. However, for some kinds of contagion our analysis implies that the long-run effects grow quite large and must be taken into account if we want to understand how democracies develop and decline. This paradox leads us to conclude that international influences are a hidden dimension of democratization.
Several prominent debates on causes of democratization or democratic decline, concern different features of the economy. Yet, many of these debates lack in robust, conclusive evidence. We revisit the links between various economic factors and (electoral) democracy, drawing on global data extending from 1789 to 2018. First, we consider how economic development influences democracy, and democratic upturns and downturns more specifically. Second, we consider structural features of the economy related to types of production and assets as potential determinants of democracy. Third, we assess indicators of short-term economic performance. Fourth, we consider different economic inequalities. Our analysis shows several null-results or non-robust results, for instance, between income inequality and democracy (both upturns and downturns), or between (various aspects of) economic development and democratic upturns. We also find several robust relationships. For example, a high share of agricultural production in the economy mitigates democratization, whereas strong short-term economic performance and high income levels hinders democratic decline.
At the turn of the nineteenth century, the Qing dynasty entered a phase of social and economic decline. By 1850, mounting crises had exploded in a devastating series of rebellions (best known for the Taiping Rebellion, 1850–1864). Until 1880, up to a quarter of the population had perished, although the numbers are debated. The civil wars revealed the bankruptcy of the dogma of fixed tax quotas that had governed China’s fiscal thought since the Ming dynasty (see the chapter by von Glahn and Lamouroux in Volume 1). New commercial taxes, most prominently foreign customs and lijin 釐金 (literally “one-thousandth”) trade tariffs, soon exceeded agricultural taxes and increased state revenue. Fiscal recovery was short-lived, however, as the double defeat in the First Sino-Japanese War (1894–1895) and the Boxer Rebellion (1900–1901) once again threw Qing finances into turmoil. Servicing the war loans and indemnities while simultaneously promoting costly “New Policy” (xinzheng 新政) reforms (1901–1911), the imperial government gradually lost control of the provinces and was unable to check the nationalist awakening of its citizenry. This led to the 1911 Revolution and, eventually, national disintegration during the warlord era.
Although paper note issuance increased dramatically in Argentina during the Triple Alliance War, inflation was not significant. This occurred because only a fraction of the increase in paper bills led to an expansion of the money supply, the rest being currency substitution. On the other hand, an increase in the demand for money for transactions was generated by rapid economic growth.
Which of the four-parameter family of Friedman–Robertson–Walker (FRW) cosmological models best fits our universe and why? This chapter addresses these two central questions for observation and theory in cosmology. Of the four parameters that define an FRW model, only two are determined by observations so far: the Hubble constant; and the ratio of energy density in radiation to the critical density. To determine the others, the spacetime geometry of the universe must be measured on large scales through a study of how matter moves through it. We describe two illustrative ways of doing that – one based on observations of distant supernovae, and the other on observations of the cosmic background radiation. Remarkably, the best cosmological parameter values are consistent with the universe being spatially flat – right on the borderline between positive and negative spatial curvature.
There is widespread anxiety about human rights ‘inflation’: positing too many human rights, it is said, will lead to their devaluation. This article seeks to disentangle the inflation objection from other concerns about rights expansionism and to critically assess it. It considers the scope and implications of the inflation objection by reference to several issues – e.g., which modes of human rights proliferation it covers and which restrictions follow from it – and argues that it is characterized by a formal emptiness since it lacks any specific criteria to indicate which human rights lead to inflation and which do not. The formal emptiness of the inflation objection does not, however, mean that it is politically neutral, for despite its inability to generate closure it does generate a sense of closure by drawing strict boundaries around the corpus of ‘proper’ human rights. This sense of closure, the article argues, entrenches currently dominant (neo)liberal understandings of human rights while generating suspicion of claims to far-reaching social transformation. In light of this, an alternative to the anti-inflation mindset is suggested: a mindset of wonder, which understands human rights claims outside of dominant understandings not as a threat, but as an opportunity to question the status quo.
This chapter presents an overview of the development of inflation and monetary policy in Israel since the early 2000s. Unlike the discussion in the previous book, which centered on the disinflation process and the transformation of the economic and institutional environment as a result of the Stabilization Program in the mid-1980s (Ben-Bassat, 2001, Section II), the setting of the current chapter is of a large external shock: the 2008 global financial crisis against the background of a relatively stable domestic environment of economic policy — monetary and fiscal — and of inflation. The chapter describes inflation and its characteristics, monetary policy, and the mechanisms of transmission from policy to inflation. It focuses on recent years, those following the financial crisis, which have been typified, in Israel and abroad, by a low-inflation environment in view of very accommodative monetary policies. The last section concludes the chapter and offers some thoughts going forward.
This article describes the Brazilian civil–military dictatorship's anti-inflation advertising campaigns in 1973 and 1977. It shows how Finance Ministers Antônio Delfim Netto and Mário Henrique Simonsen used advertising as a substitute for economic policy. It argues that they turned to advertising to divert attention from their own policy failures by blaming urban women, small shopkeepers and consumers for the growing inflation problem. This article details the background of the campaigns and examines the advertisements, especially their use of normative gender ideologies. By reference to newspapers and political speeches, it also documents the social and political reaction to the campaigns.
This chapter is devoted to the initial conditions. Here we explain how the unavoidable quantum fluctuations are amplified during an inflationary phase and lead to a nearly scale-invariant spectrum of scalar and tensor perturbations. We also calculate the small non-Gaussianities generated during single field in ation and discuss the initial conditions for mixed adiabatic and iso-curvature perturbations.
The first chapter contains a räsumä of the cosmology treating the homogeneous and isotropic universe. The Friedmann equations are derived and the thermal history of the Universe is discussed in some detail. Special emphasis is laid on the process of recombination and the decoupling of photons from the cosmic uid. Nucleosynthesis and cosmic in ation are also discussed.
In Memorandum on the Debts of State (1715) Montesquieu explains how to curb France’s debt crisis stemming principally from Louis XIV’s war-mongering. Rather than recommending declaration of bankruptcy, he proposes a gradual reduction of the debt by means of a partial repudiation. The greater the proportion of an individual’s overall wealth invested in the crown’s debt, the less the reduction would be, since such individuals would have fewer other investments. Montesquieu was confident his debt reduction plan would succeed and predicted the king would be able to reduce taxes. In his Considerations on the Wealth of Spain (1727–1728) he explains that the main reason for the collapse of Spain as a powerhouse in modern Europe was that the Spanish became the victims of inflation. The more bullion brought to Spain’s shores, the less valuable it became since more and more specie chased roughly the same amount of goods.