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The concept of “neutral money” has a long history in monetary theory and macroeconomics. Like a number of other macro concepts, its meaning has been subject to a variety of interpretations over the decades. I explore the way in which Hayek used this term in his monetary writings in the 1930s and argue that “neutrality” for Hayek was best understood as the idea that monetary institutions were ideal if money, and changes in its supply, did not independently affect the process of price formation and thereby create false signals leading to economic discoordination, and especially of the intertemporal variety. This view was rooted in his work on money and the trade cycle in the late 1920s and early 1930s and also bound up with his understanding of “equilibrium theory.” The importance of his concept of neutrality was that it served as a benchmark for judging the comparative effectiveness of different monetary regimes and policies. That use is still relevant today.

Ostrander’s notes reveal Palyi’s course to have had, in effect, four parts, the first two being principal ones. The first part is a review and interpretation of selected aspects of monetary theory, especially the Banking versus Currency Schools of monetary policy. The second part is an interpretation of recent European history, centering on the rise to power of Adolph Hitler. The third deals with Hayek, apparently through a report by another student, Albert G. Hart. The fourth deals with Keynes, apparently through a (second) report by Rose Director. These are taken up in the same sequence in this introduction.

This is the second set of lecture notes from courses in public finance published in an archival volume in this series. Volume 19-C (2001) was entirely devoted to notes from lectures by E. R. A. Seligman at Columbia University. Two differences mark Seligman’s lectures and the lectures by Henry C. Simons at Chicago, as reported below. Seligman seems to have been lecturing primarily to students in tax administration, hence he presented very little economic theory; whereas Simons was lecturing to graduate students in economics, and presented relatively more theory. Seligman did not refrain from some passing of judgment but his lectures were largely descriptive and non-judgmental; whereas Simons has no hesitation in presenting his own normative approach on various issues. These issues tended strongly to focus on inequality, tax justice, and progressivity.

In the early 1930s, Nicholas Kaldor could be classified as an Austrian economist. The author reconstructs the intertwined paths of Kaldor and Friedrich A. Hayek to disequilibrium economics through the theoretical deficiencies exposed by the Austrian theory of capital and its consequences on equilibrium analysis.

The author approaches the discussion using a theoretical and historical reconstruction based on published and unpublished materials.

The integration of capital theory into a business cycle theory by the Austrians and its shortcomings – e.g. criticized by Piero Sraffa and Gunnar Myrdal – called attention to the limitation of the theoretical apparatus of equilibrium analysis in dynamic contexts. This was a central element to Kaldor’s emancipation in 1934 and his subsequent conversion to John Maynard Keynes’ The General Theory of Employment, Interest, and Money (1936). In addition, it was pivotal to Hayek’s reformulation of equilibrium as a social coordination problem in “Economics and Knowledge” (1937). It also had implications for Kaldor’s mature developments, such as the construction of the post-Keynesian models of growth and distribution, the Cambridge capital controversy, and his critique of neoclassical equilibrium economics.

The close encounter between Kaldor and Hayek in the early 1930s, the developments during that decade and its mature consequences are unexplored in the secondary literature. The author attempts to construct a coherent historical narrative that integrates many intertwined elements and personas (e.g. the reception of Knut Wicksell in the English-speaking world; Piero Sraffa’s critique of Hayek; Gunnar Myrdal’s critique of Wicksell, Hayek, and Keynes; the Hayek-Knight-Kaldor debate; the Kaldor-Hayek debate, etc.) that were not connected until now by previous commentators.

According to the New Monetary Economics (NME), the introduction of non‐tangible payments media would altogether invalidate current monetary economics. After an illustration of the main tenets of the NME, critically analyses its rejection of both the quantity theory and liquidity preference on the basis of Keynes′ theory of money.

For nearly 80 years, the field of macroeconomics has largely been shaped by the aftermath of the Keynesian revolution. Many economists have argued that this revolution and the subsequent internal and external disputes it has sparked have had the unfortunate side effect of crowding out much of what was good in macro-level analysis before it, leading to the dissatisfactory state of macroeconomics we have today. In the search for alternative paths for macroeconomics, I focus on two separate but compatible traditions: monetary disequilibrium (MD) theory and the Austrian business cycle theory (ABCT). I argue that scholars in these traditions employed a far richer micro-theoretic explanation for the business cycle well before Keynes’s General Theory. Unfortunately, their ideas were not united in time to mount a sufficient counterattack to the Keynesian crusade. My goal is to unite the best elements of these two traditions by providing what I believe is the “missing link” that can help connect these alternative paths: free banking theory.

F. A. Hayek’s macroeconomic theory and policy ideas have gained renewed attention since the cheap-money boom until 2007, and subsequent bust, followed the basic Hayekian narrative. Only to a very limited extent, however, do we find Hayek’s ideas on the agenda of mainstream macroeconomic researchers since Robert Lucas’s research program gave way to “Neoclassical” and “New Keynesian” DSGE models. We find examples of deeper interest on the periphery of the mainstream. Hayek’s influence on today’s macroeconomic policy discussions remains similarly limited, although he has become an icon to some opponents of loose monetary policy.

This chapter discusses the “seigniorage argument” in favor of public money issuance, according to which public finances could be improved if the state more fully exercised the privilege of money creation, which is, today, largely shared with private banks. This point was made in the 1930s by several proponents of the “100% money” reform scheme, such as Henry Simons of the University of Chicago, Lauchlin Currie of Harvard and Irving Fisher of Yale, who called for a full-reserve requirement in lawful money behind checking deposits. One of their claims was that, by returning all seigniorage profit to the state, such reform would allow a significant reduction of the national debt. In academic debates, however, following a criticism first made by Albert G. Hart of the University of Chicago in 1935, this argument has generally been discarded as wholly illusory. Hart argued that, because the state, under a 100% system, would be likely to pay the banks a subsidy for managing checking accounts, no substantial debt reduction could possibly be expected to follow. The 100% money proponents never answered Hart’s criticism, whose conclusion has often been considered as definitive in the literature. However, a detailed study of the subject reveals that Hart’s analysis itself appears to be questionable on at least two grounds: the first pertains to the sources of the seigniorage benefit, the other to its distribution. This chapter concludes that the “seigniorage argument” of the 100% money authors may not have been entirely unfounded.

This paper is a review essay of Leeson, R. (Ed.), Keynes, Chicago and Friedman (2 volumes), Pickering and Chatto, London, 2003. These volumes contain a comprehensive collection of previously published papers, and also some interesting new materials, relating to the controversy about the accuracy of Milton Friedman's depiction of the “oral tradition” in monetary economics at the University of Chicago in the 1930s and 1940s. As such, the work is a notable addition to the scholarly literature. The broader issue raised by this collection is the precise relationship between Friedman's “monetarism” and the so‐called “Keynesian economics” of the neoclassical synthesis, and specifically, whether there was any real difference between them.