I’ve recently come to understand the tight money as a cause of the recession story better. It might imply barter, so can one thing of examples of that?
Nick Rowe recently made the case that excess money demand is the fundamental reasons behind the Keynesian and Monetarist theories of recession. Alex Tabarrok responds that if Nick is correct there should be a rise in barter transactions and the use of alternative currencies. He shows that there was extensive use of both during the Great Depression. Tabarrok has a harder time finding evidence of these occurring during the recent recession. Some commentators provide anecdotal evidence that barter trade has risen. Whether it has or hasn’t, the bigger point is that barter and the use of alternative money assets is a way to mitigate the impact of money demand shocks. Even if the data were to show these mitigaters are not being used, such a finding could simply mean that the recovery will be prolonged rather than being evidence against Nick’s hypothesis. After all, there is compelling evidence of a serious excess money demand problem in the U.S. economy.
P.S. Some places in the Eurozone are using alternative currencies.
Alex Tabarrok on the Implications of Excess Money Demand
email@example.com (David Beckworth)
Mon, 21 Mar 2011 16:03:00 GMT