Don Patinkin

Israel's Stabilization Program of 1985, or Some Simple Truths of Monetary Theory

Within a period of two months, and with minimal adverse effects on employment and the real functioning of the economy, Israels 1985 stabilization program reduced the annual rate of inflation from close to 500 percent to less than 20 percent (corresponding, respectively, to average compounded monthly rates of 16.1 and 1.5 percent) and has maintained that situation until now (1992). The major purpose of this paper is to use this inflationary experience as an illustration of some of the simple truths of traditional monetary theory. At the same time, this experience also illustrates the advantages of a heterodox policy (that is, one that, in addition to restrictive monetary and fiscal measures, makes temporary use of wage and price controls, often within the context of a social contract) in bringing an inflationary process to an end. A second purpose is to explain the unique political circumstances that—despite the aforementioned earlier failures—created the credibility that enabled the 1985 program to succeed.

On different interpretations of the General Theory

Abstract During the first quarter-century after the publication of the General Theory , there were no significant differences among the various interpretations of this book. Such differences began to appear only in the 1960s. These interpretations are critically examined and an explanation given of their emergence.

In Search of the "Veil of Money" and the "Neutrality of Money": A Note on the Origin of Terms

Nowadays Veil of Money and Neutrality of Money are shorthand expressions for the basic quantity-theory proposition that it is only the absolute price level of an economy, and not relative prices and the rate of interest, and hence real outputs, that is affected by changes in the quantity of money. Thus the notion goes back to early concepts of the quantity theory, such as the classic statement by David Hume in his 1752 essays Of Money, Of Interest and Of the Balance of Trade. One would have thought that an author such as Mill, who (in the spirit of Hume) made the famous statements that the relations of commodities to one another remain unaltered by money and that there cannot, in short, be intrinsically a more insignificant thing, in the economy of society, than money ( 1871, p. 488 ) would also have made use of one or both of these terms. We have not, however, succeeded in finding them in any of Mills writings;

On the Relation between Keynesian Economics and the "Stockholm School."

The possible anticipation of the General Theory by the “Stockholm School” is a much-debated question in the history of modern macroeconomic theory. In order to deal with it, the distinctive analytical characteristic of the General Theory must first be defined. This is defined as the assignment of an equilibrating role to variations in output. The writings of Wicksell, Lindahl, Myrdal and Ohlin prior to 1934 are then examined, and it is shown that they do not contain such an analysis. Since Keynes developed the General Theory by the fall of 1933 at the latest, it is concluded that the “Stockholm School” did not anticipate him.

Indexation in Israel

The spread of ‘two-digit inflation’ to many parts of the Western world has led in recent years to greatly increased interest in the possible use of indexation to deal with some of the problems which arise in connection with inflation that proceeds relatively at such a rapid rate. It is accordingly the purpose of this paper to indicate in broad lines what lessons we can learn about indexation from Israel’s thirty-five years of experience with it.1

Meltzer on Keynes

Abstract This paper provides further evidence in refutation of the major aspect of Allan Meltzers recent ‘different interpretation’ of the General Theory. It also provides further evidence in refutation of his interpretation of Keynes policy views.