1. Pedagogical Approaches to Theories of Endogenous
versus Exogenous Money: Pluralism in Action?
Pluralism in economics: rethinking the teaching of economics, October
18, 2008, City University, London.
Stephen Kinsella
Dept. Economics,
University of Limerick.
stephen.kinsella@ul.ie
www.stephenkinsella.net
October 18, 2008
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 1 / 17
2. Today
1 Problem
2 Example: Two Approaches to Money
3 For discussion: Is there a middle way?
4 Conclusion
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 2 / 17
3. You’re Out There...
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 3 / 17
4. Why should I learn this?
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 4 / 17
5. Cons of Teaching PKE
Time
Confusion
Learner Uncertainty/Lack of Background Knowledge
Compare & Contrast Leaves some students behind
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 5 / 17
6. Cons of Teaching PKE
Time
Confusion
Learner Uncertainty/Lack of Background Knowledge
Compare & Contrast Leaves some students behind
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 5 / 17
7. Cons of Teaching PKE
Time
Confusion
Learner Uncertainty/Lack of Background Knowledge
Compare & Contrast Leaves some students behind
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 5 / 17
8. Cons of Teaching PKE
Time
Confusion
Learner Uncertainty/Lack of Background Knowledge
Compare & Contrast Leaves some students behind
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 5 / 17
9. Q: When is the cost of Pluralism too high?
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 6 / 17
10. A: When Overlaps don’t exist, don’t opt for pluralism, cost
too high
Semantic Proximity, e.g. Unemployment
Definitional Proximity: U = L/(E + L)
Empirical Proximity
EG: Existence of Unemployment
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 7 / 17
11. A: When Overlaps don’t exist, don’t opt for pluralism, cost
too high
Semantic Proximity, e.g. Unemployment
Definitional Proximity: U = L/(E + L)
Empirical Proximity
EG: Existence of Unemployment
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 7 / 17
12. A: When Overlaps don’t exist, don’t opt for pluralism, cost
too high
Semantic Proximity, e.g. Unemployment
Definitional Proximity: U = L/(E + L)
Empirical Proximity
EG: Existence of Unemployment
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 7 / 17
13. A: When Overlaps don’t exist, don’t opt for pluralism, cost
too high
Semantic Proximity, e.g. Unemployment
Definitional Proximity: U = L/(E + L)
Empirical Proximity
EG: Existence of Unemployment
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 7 / 17
14. Non Trivial Matter
Samuelson (1997, pg. 7)
. . . words may be treacherous because we do not react in a
neutral manner to them. Thus a man who approves of a
government program to ration housing will call it a program of
“social planning,” while an unsympathetic opponent will describe
the same activity as “totalitarian bureaucratic regimentation.”
Who can object to the former, and who could condone the latter?
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 8 / 17
15. Two Approaches
Stock Flow Consistent Macro Models: Godley and Lavoie (2006)
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 9 / 17
16. SFC Treatment of Money
There is a gap in (historical) time between production and sales which
generates a systemic need for finance;
bank money is endogenously determined by the flow of credit and;
total real income must be considered to be divided into three parts –
that received by entrepreneurs, that received by labour, and that
received by banks.
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 10 / 17
17. SFC Treatment of Money
There is a gap in (historical) time between production and sales which
generates a systemic need for finance;
bank money is endogenously determined by the flow of credit and;
total real income must be considered to be divided into three parts –
that received by entrepreneurs, that received by labour, and that
received by banks.
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 10 / 17
18. SFC Treatment of Money
There is a gap in (historical) time between production and sales which
generates a systemic need for finance;
bank money is endogenously determined by the flow of credit and;
total real income must be considered to be divided into three parts –
that received by entrepreneurs, that received by labour, and that
received by banks.
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 10 / 17
19. SFC Treatment of Money
Pedagogy
Modeled using differential equations
Simulated in Eviews
Perturbation analysis gives policy recommendations/comparisons
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 11 / 17
20. SFC Treatment of Money
Pedagogy
Modeled using differential equations
Simulated in Eviews
Perturbation analysis gives policy recommendations/comparisons
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 11 / 17
21. SFC Treatment of Money
Pedagogy
Modeled using differential equations
Simulated in Eviews
Perturbation analysis gives policy recommendations/comparisons
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 11 / 17
23. DSGE Treatment of Money
Y = A × F (κK , L), (1)
Money instantaneously created & destroyed
=⇒ A “social contrivance” or medium of exchange
Households maxmise consumption C subject to constraints on
investment, ∆K , production, summarised in the production function
relation, and depreciation, δK :
C + ∆K = A × F (K , L) − δK
Smooth pedagogical transition between micro & macro explanations
of income and substitution effects, etc.
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 13 / 17
24. DSGE Treatment of Money
Y = A × F (κK , L), (1)
Money instantaneously created & destroyed
=⇒ A “social contrivance” or medium of exchange
Households maxmise consumption C subject to constraints on
investment, ∆K , production, summarised in the production function
relation, and depreciation, δK :
C + ∆K = A × F (K , L) − δK
Smooth pedagogical transition between micro & macro explanations
of income and substitution effects, etc.
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 13 / 17
25. DSGE Treatment of Money
Y = A × F (κK , L), (1)
Money instantaneously created & destroyed
=⇒ A “social contrivance” or medium of exchange
Households maxmise consumption C subject to constraints on
investment, ∆K , production, summarised in the production function
relation, and depreciation, δK :
C + ∆K = A × F (K , L) − δK
Smooth pedagogical transition between micro & macro explanations
of income and substitution effects, etc.
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 13 / 17
26. DSGE Treatment of Money
Y = A × F (κK , L), (1)
Money instantaneously created & destroyed
=⇒ A “social contrivance” or medium of exchange
Households maxmise consumption C subject to constraints on
investment, ∆K , production, summarised in the production function
relation, and depreciation, δK :
C + ∆K = A × F (K , L) − δK
Smooth pedagogical transition between micro & macro explanations
of income and substitution effects, etc.
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 13 / 17
27. DSGE Treatment of Money
Y = A × F (κK , L), (1)
Money instantaneously created & destroyed
=⇒ A “social contrivance” or medium of exchange
Households maxmise consumption C subject to constraints on
investment, ∆K , production, summarised in the production function
relation, and depreciation, δK :
C + ∆K = A × F (K , L) − δK
Smooth pedagogical transition between micro & macro explanations
of income and substitution effects, etc.
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 13 / 17
28. DSGE Treatment of Money
Y = A × F (κK , L), (1)
Money instantaneously created & destroyed
=⇒ A “social contrivance” or medium of exchange
Households maxmise consumption C subject to constraints on
investment, ∆K , production, summarised in the production function
relation, and depreciation, δK :
C + ∆K = A × F (K , L) − δK
Smooth pedagogical transition between micro & macro explanations
of income and substitution effects, etc.
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 13 / 17
29. DSGE Treatment of Money
Pedagogy
Usual Textbook graphical analysis
Light calculus
Data fitting
Policy prescriptions from model fitting
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 14 / 17
30. DSGE Treatment of Money
Pedagogy
Usual Textbook graphical analysis
Light calculus
Data fitting
Policy prescriptions from model fitting
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 14 / 17
31. DSGE Treatment of Money
Pedagogy
Usual Textbook graphical analysis
Light calculus
Data fitting
Policy prescriptions from model fitting
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 14 / 17
32. Is there a middle way?
Yes.
Explore common problem statements differing solution concepts in
comparative setting
EG The Multiplier, Unemployment, Growth, Consumption, etc.
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 15 / 17
33. Is there a middle way?
Yes.
Explore common problem statements differing solution concepts in
comparative setting
EG The Multiplier, Unemployment, Growth, Consumption, etc.
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 15 / 17
34. Is there a middle way?
Yes.
Explore common problem statements differing solution concepts in
comparative setting
EG The Multiplier, Unemployment, Growth, Consumption, etc.
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 15 / 17
35. Conclusion: Only opt for pluralism when sufficient overlaps
exist. Otherwise, world of pain.
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 16 / 17
36. References
Robert J. Barro. Macroeconomics: A Modern Approach. South-Western
College Pub., 1st edition, 2007. URL http://www.amazon.com/
Macroeconomics-Approach-Robert-J-Barro/dp/0324178107/ref=
pd bbs sr 1?ie=UTF8&s=books&qid=1198791536&sr=1-1.
Wynne Godley and Marc Lavoie. Monetary Economics An Integrated
Approach to Credit, Money, Income, Production and Wealth.
Palgrave-Macmillan, 2006. URL http:
//www.palgrave.com/products/Catalogue.aspx?is=0230500552.
Paul Samuelson. Economics: The Original 1948 Edition. McGraw
Hill/Irwin, 1997.
Stephen Kinsella (UL) Pedagogical Approaches October 18, 2008 17 / 17
