42 Books Like Inflation, Unemployment and Capital Malformations

When I first met him at the University of Fribourg, Switzerland in 1969, I was immediately fascinated by Bernard Schmitt’s passion for scientific research and by his novel approach to monetary macroeconomics.

Three years later I started working with him as a teaching and research assistant and went on working as his closest collaborator until his death in 2014. The other two co-editors of this book also had the privilege to work closely with him.

Conceived as an homage to Schmitt’s legacy, this book is a collection of contributions explaining the historical origin, the analytical content, and the current relevance of Schmitt’s quantum macroeconomic analysis.

The book brings together a series of contributions to monetary macroeconomics as well as Bernard Schmitt’s last critique to relative price determination.

I recommend it to the reader interested in monetary theory because it gives an overview of the most challenging topics in this field, from money to financial crisis, passing through profit formation, inflation, and unemployment.

International issues are also considered, while a groundbreaking analysis of sovereign debt and interest payments is presented in what was to become Schmitt’s last contribution in English to international macroeconomics.

I am especially fond of this book because I edited it with a dear friend of mine, Prof. Mauro Baranzini, who, despite our different analytical backgrounds has always supported and encouraged my research in monetary macroeconomics.

The book lays the foundations for a fruitful collaboration among economists who share the same objective: to explain satisfactorily and comprehensively the disequilibria hampering the smooth development of our economies.

The works presented in this volume are a serious attempt to clarify the terms of the problem of inflation and unemployment.

They must be seen as contributions to building a modern theory of monetary and structural macroeconomics.

I recommend this book to any reader interested in the possible cross-fertilization between diverse heterodox traditions in the study of money.

Bringing together perspectives from post-Keynesians, Circuitists, and the Firbourg-Dijon School, the book continues the tradition of Keynes’s and Kalecki’s analysis of a monetary production economy, emphasizing the similarities between the various approaches, and expanding the analytical breadth of the theory of endogenous money.

The authors aim to open new avenues of monetary research and fuel renewed interest in the nature and role of money in capitalist economies.

Sargent shows how the monetary excesses leading to inflation have often been connected to using money to cover government budgetary shortfalls. This is vividly illustrated in chapter 3 by the way that ending the post-World War I hyperinflations required fundamental fiscal as well as monetary reform. 

Sargent also convincingly demonstrates the power of expectations and the idea that, as government behavior changes, people’s behavior adjusts as well.

You really cannot argue with the Ancient Chinese proverb included on the first page: “The government has strategies. The people have counterstrategies.” Amidst the rich trove of historical cases, my favorite remains chapter 6’s interpretation of the interactions between President Ronald Reagan and a recalcitrant US Congress in the early 1980s as a “game of chicken.” 

Grappling with the meaning of money and unraveling its impact on prices or on the creation of wealth is enduringly controversial.

Fascination with money - to eyes or pockets - is universal. Fisher understood this!

He defined money simply as what is acceptable in exchange for goods: bills, coins, cheques - legal tender - or other forms of debt.

Since inflation, for Fisher, is a monetary phenomenon, and as in classical physics, where one matter is equalised to another, in his economics, money-on-the-move is always balancing products-for-a-price; in the long run, too much money or too little does not affect wealth creation but only the level of price.

Fisher is a ‘must read’ because this, his ultimate conclusion, deprived of his many subtleties, is the basis of present macroeconomics.

This was an exciting reading for me. I find a great connection with Akerlof and Shiller’s book Animal Spirits.

This book admits, that people might have some cognitive limitations and use simple forecasting rules in order to make decisions with resulting implications at the aggregate level. As a result, there is great potential for the emerging, yet undiscovered discipline of behavioral macroeconomics.

Personally, for me, revolutionary element is the combination of bounded rationality and willingness to learn from past mistakes and consequent switch to better rules. This book introduces special behavioral macroeconomic model based on the dynamics of endogenous animal spirits, in which case waves of optimism and pessimism are responsible for the business cycle itself.

I find especially interesting the part devoted to the discussion of how central banks should approach inflation targeting in behavioral models with animal spirits.

I am an academic economist, but even more interested in intellectual debates. I discovered this book when I was a PhD student, and it has remained a favorite of mine.

In the 1970s, macroeconomics (not my field) underwent a revolution. The old guard was “Keynesian,” the new Turks were “new classical”. This book is a series of conversations from the early 1980s with the protagonists of this epic period, many future Nobel laureates.

The interviewer, Arjo Klamer, was interested in the rhetoric and culture of economics, and he constructed the interviews in a way that nicely brought out these elements. The interlocutors are brilliant, acerbic, and funny. If you think economics is dry or boring, you won’t think so after seeing how passionate these people are.

Take Hayek’s market economy as a Bohemian accordion orchestra.

As its instruments produce music, each elongates, pulls in air (analogous to money), and compresses, expresses air (money). Air-in (savings) is equal to air-out (investment). Fluctuating elongations and compressions are an essential feature of the orchestra (the economy).

For Hayek, interference with harmonious accordion (economic) activity infusing or restricting air (money) would spoil the music.

Economic fluctuations stem from preferences, spending for present enjoyment, or saving for future gains. Relative demands for end products or capital impact relative prices, costs, and returns, affecting savings/investment. Investment money, as IOUs, flies where returns are highest.

Hayek engages readers to prove that bank interventions’ tinkering with money is as capable of producing compassionate social outcomes as free individuals using their earnings as they wish.

During my graduate school years at Carnegie-Mellon University, I was exposed to Thomas Sargent’s Macroeconomic Theory, which taught me how to work with difference equations.

More importantly, it inculcated the notion in me that economic theory and econometrics are inseparable notions. The approach that I attained from this book together with the courses that I took at Carnegie-Mellon’s Graduate School of Industrial Administration - GSIA as it was called then – have colored by my research outlook and my research itself over the years.

While Thomas Sargent produced many other graduate textbooks on macroeconomics in future years, I might say this was the most influential one (for me) in terms of the fluidity of its writing and its attempt to bridge macroeconomic theory and empirical research.