Sunday, 19 June 2016


Ok, trashtalking is not so weird the day after a horrible exam. 2 down, 2 to go. This is the #LifeOfAnEconStudent after all.

I ranted about this course after my first lecture and here we are again. In short, Monetary Economics looked really interesting, and the professor was the same amazing one I had last semester for history of economic thought. I quickly learned that he was on leave, and replaced by someone else - alright, I'm sure the course still covers the same topics and it'll be just as interesting. 

Or so I thought.

Rather than the semi-macro, semi-HET analytical course I expected, I got microeconomics on crack. In fact, the course was micro to the crackth power. Utility functions, elaborate models, derivatives and rational expectations, all in the sacred quest for microfoundations of money.

But OK. Let’s be fair. Let’s do some blue-sky thinking, as Bernanke always says. If I wanna construct a course on monetary economics, what would I include?

Maybe a little monetarism and its failures. A lot of central bank vs financial markets. Some history of thinking about money, like the essay I recently wrote for my political economy unit. Presumably some Graeber (2011) critique of mainstream and I'd probably start with Menger and marginalism. Oh, to bligh Steve Keen a bit, I’d definitely include ideas about banking and credit. Obviously - how could one think about money without banks and loans and mortgage payments?

Let’s compare notes. What did my one semester adventure into the sacred ivory towers of monetary economics include?

Three models (3)! Three microeconomics models on crack. That is, utility functions, optimisation, first-order conditions, market-clearing conditions and a whole bunch of algebra. More specifically?

The first model didn’t even have money in it, because its asset pricing formula ruled out any use of money. But a lot of variables and algebra!

The second model solved that problem by specifically putting money in the utility function of individuals and so its value came from simply holding pieces of paper - not using them. But we were playing with Walrasian markets and instant market-clearing, which means no sane person would ever need money – because hey, the Walrasian Auctioneer calls out the prices and optimally clear every market, so money has no purpose.

The last model, which apparently was cutting-edge in monetary economics, set up an insanely-complicated world where you have two alternating markets (with centralized vs decentralized good, the kinds of which remained undefined…), identical individuals with rational expectations (who, by probability σ sometimes randomly become sellers or buyers), pages after pages with algebra, strictly no banks or credit or friendships or relations between humans – and the conclusion?
Money holding is suboptimal unless buyers have all the bargaining power. Oh, and of course, the whole purpose of this model was to give central banks some policy advice. I'm sure that whatever these models spit out will be immensely useful for any central bank in this world, which of course looks pretty much like this. Everyone knows that.

Maybe I’m just an insane radical free-marketer who doesn't like central banks and is somewhat sceptical about mathematical equalities about the real world, but is this for freakin' real? This is what some academic economists around the world employ their time and effort and brilliant minds to do?

As I've said before, I'm sure the Economics departments of Sydney and Glasgow will reimburse me for all the mindless effort I've spent on their microeconomics and monetary classes.

Don’t ever take courses in monetary economics. As in never. Ever.

/rant over. 


  1. Hi mate. I just found your blog via Twitter. How much longer will be in Sydney? I ask because I expect to be starting work at Uni Syd next semester as a post-doc. I just finished an econ PhD at UQ in Brisbane. And it seems like we have a lot in common in terms of our frustrations with the curreny process of economic indoctrination, or should I say, teaching.

    I've written various posts about this on my blog before

    1. Hi, Cameron! Nice to have you stopping by. Your blog looks great, I'll pop in from time to time:)

      That sounds awesome, mate! Welcome to Sydney. Sadly, I'll be leaving mid-July as this is my last semester here. If you're around Sydney anytime before that, it would be great to hang out for a chat!