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Analysis and insight into trends
in money and banking, and their impact
on the world's leading economies

Research Papers

Presentation at the launch of the Institute of International Monetary Research

by Professor Tim Congdon

The Quantity Theory of Money - which emphasizes an excess of money growth over the growth of output as the dominant cause of rising prices - is one of the most long-standing and well-developed theories in economics. It has an obvious basis in fact, with a clear link in the last 30 years between the rates of increase in money (broadly-defined, to include all or nearly all bank deposits) and in nominal gross domestic product across the G20 leading nations. However, no academic research institute in the UK pays much attention to the Quantity Theory of Money in macroeconomic forecasting or policy advisory work, even though the relationship between money and nominal GDP suggests that stable growth of money ought to be sought, in order to deliver similarly stable growth of nominal GDP.


Research Paper 1: A critique of two Keynesian Concepts

by Professor Tim Congdon

The purpose of this paper is to discredit Keynesian income-expenditure analysis and the concept of the multiplier embedded within it. These two key concepts of the Keynesian textbook mainstream omit variables critical to the determination of macroeconomic outcomes. The omissions are so serious that the income-expenditure circular flow is incomplete and misleading if it pretends to constitute a policy-making framework.

Critically, when organized in its familiar textbook form, income-expenditure analysis has no room for either the banking system or the quantity of money. But changes in the quantity of money have major impacts on asset portfolios and expenditure decisions. These changes must be integrated in all discussions of the macroeconomic conjuncture, if such discussions are to make any claim to real-world plausibility.

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Banking and finance in the early years of the United States of America were chaotic. Two of the founding fathers - Thomas Jefferson and James Madison - were hostile to banking, since the issue of paper money led to inflation and default. According to Jefferson,

"...banking establishments are more dangerous than standing armies"

The Great Recession of 2008 - 09 renewed concern about the potential role of the banking system in social and financial instability, and argued for more research and analysis about this critical topic.