Helicopter Ben, Monetarism, The New Keynesian Credit View and Loanable Funds

Brett Fiebiger and Marc Lavoie

Journal of Economic Issues, 2020, vol. 54, issue 1, 77-96

Abstract: The purpose of this article is to examine the intellectual roots of monetary dominance over fiscal policy. A first step was Milton Friedman’s reinterpretation of the Great Depression based on the money-multiplier story associated with the fractional-reserve system. In the 1990s New Keynesian authors and Ben Bernanke in particular never got away from Friedman’s interpretation and remained faithful to the loanable funds theory despite their new focus on bank credit and their apparent abandonment of monetarism. New Consensus Macroeconomics kept arguing that expansionary fiscal policy could only lead to higher inflation rates and real interest rates that lowered potential output. The New Keynesian literature on the zero lower bound of the early 2000s thus mostly overlooked the benefits of expansionary fiscal policy; instead, the optimism on unconventional monetary policies failed to prepare policymakers for the Global Financial Crisis. The crisis demands far-reaching changes to monetary and macro theory not least of which is a recognition that the theory of loanable funds is incapable of providing any insight into how the financial system works in practice.

Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://hdl.handle.net/10.1080/00213624.2020.1720567 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Helicopter Ben, monetarism, the New Keynesian credit view and loanable funds (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mes:jeciss:v:54:y:2020:i:1:p:77-96

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/MJEI20

DOI: 10.1080/00213624.2020.1720567

Access Statistics for this article

More articles in Journal of Economic Issues from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().