Rethinking the theory of money, credit, and macroeconomics: a review essay.

Abstract

This article provides a summary, analysis, and critique of John Smithin’s recently published book Rethinking the Theory of Money, Credit, and Macroeconomics. The book can be viewed as Smithin’s magnum opus. It focuses on how profits arise under capitalism and provides a sensible explanation in terms of money and the need to borrow. As with John’s other writings, it provides deep insights into how capitalist economies work. It is also erudite and extremely well-written. On the other hand, I have concerns with some of the policy positions espoused in the book—controlling inflation via some monetary policy rule, opposition to the balanced budget multiplier, and how monetary policy can help with our contemporary distribution problem.

Keywords:

• Balanced budget multiplier
• income distribution
• inflation
• monetary policy
• Smithin Rule

Notes

1 Page 137 of Rethinking notes that a varies cyclically, as does Atesoglu and Smithin (2006).

2 It should be noted that what has become the standard Harrod-Domar model is not necessarily in either Harrod (1934, 1936) or Domar (1946, 1947).

3 This idea is also in Keynes (1936, Chap. 24).

4 An earlier version of this paper was presented at the 2019 History of Economics Society meetings. The author thanks the attendees of the conference session on Smithin’s book for their helpful comments and also thanks L. Randall Wray and several anonymous referees for comments on an earlier version of this article.