Abstract
The recent financial crisis has been a powerful reminder that the intersectoral flow of funds is also—always and everywhere—a local phenomenon with real effects. Yet, the contemporary canon of regional economic theory has enshrined the classical dichotomy, treating the spheres of money and production as analytically distinct. Consequently, the current literature has little to say about monetary phenomena and their spatial consequences. The widespread disengagement of regional scientists with respect to issues of money, credit and banking represents a radical break with the discipline’s intellectual origins over half a century ago. This chapter re-examines the monetary content of some of the foundational works in regional science. In particular, I argue that August Lösch and Walter Isard, the former a student of Joseph Schumpeter’s and the latter a student of Alvin Hansen’s, both represent important branches in the long lineage of twentieth century continental and U.S. monetary thought, respectively. In doing so, this chapter also outlines key elements of a research agenda that reengages with regional aspects of money and credit, casting them as central pillars of a Lösch-Isard synthesis.
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- 1.
- 2.
Recent attempts to infuse location theory with monetary analysis, such as Figueiredo and Crocco (2008) and Nogueira et al. (2015), represent rare exceptions in the otherwise languishing literature on money and its role in regional development. See Dow (1987) and Bieri and Schaeffer (2015) for comprehensive surveys of the literature on the treatment of money in regional economics.
- 3.
Isard first introduces the expression ‘space-economy’ in his QJE (1949) survey article wherein he defines the term as “concern[ing] itself with the local distribution of factors and resources as well as with local variations in prices, and thus with the immobilities and spatial inelasticities of factors and goods” (p. 478). Isard’s usage of the term is clearly inspired by its German origin as Raumwirtschaft (cf. Weigmann 1931). While it has never found wide adoption in regional science beyond Isard, a variety of economic geographers with a political economy perspective continue to use the expression (e.g. Sheppard and Barnes 1990; Martin 1999).
- 4.
As an example of renewed interest in regional aspects of monetary phenomena, a string of recent empirical papers examines differences in regional price level dynamics in the wake of the crisis. See, e.g., Del Negro and Otrok (2007); Beckworth (2010); Fielding and Shields (2011); Beraja et al. (2015); Hurst et al. (2016).
- 5.
Chapter 12 of Isard’s (1960) magisterial Methods of Regional Analysis—at close to 200 pages by far the longest, but perhaps least remembered—identifies five ‘channels of synthesis’ that form the interdisciplinary core of regional science method: (i) Interregional input-output analysis; (ii) urban spatial structure; (iii) gravity modelling; (iv) values-social goals framework; and (v) the operational fusion of all previous channels. See also Schaeffer et al. (2012) for a recent discussion of regional science as an integrative social science project.
- 6.
Monetary frictions that are consistent with the neoclassical dichotomy include the slow adjustment of nominal quantities, such as, for example, sticky prices, and money illusion. Importantly, this form of monetary non-neutrality would still be considered part of Schumpeter’s real analysis as it predominantly concerns itself with the impact of the nominal money stock on real variables. In the same sense would Milton Friedman’s monetarism also be considered as part of real analysis despite its “money does matter” maxim.
- 7.
The broad chartalism-metallism dual finds its earliest, modern systematization in von Mises (1917). Schumpeter (1954), arguably a ‘chartallist’ himself, classified Marx as a ‘metallist’ and Keynes as a ‘chartalist’. See Trautwein (2000) and Arestis and Mihailov (2011) for more detailed overviews in terms of possible classifying the literature on monetary thought, including a good survey on the literature related to the ‘credit view’ of money.
- 8.
- 9.
- 10.
See Bieri (2016) for more discussion of this point in particular.
- 11.
It is clear from Lösch’s own records (partly published in Riegger 1971) that Schumpeter was more than an academic mentor, but also a personal inspiration and close friend with whom he resided several times in Cambridge, Mass. during his Rockefeller fellowship stays.
- 12.
- 13.
Throughout, I adhere to Copeland’s original terminology in his seminal Study of Moneyflows in the United States (1952) which uses ‘moneyflows’ as one word, rather than a hyphenated or two-word term.
- 14.
The mainstream claim about the original classical economists’ adherence to the ‘classical neutrality postulate’, i.e., that money stock changes affect only the price level and not real output and employment, is subject to much debate (Humphrey 1991).
- 15.
In their most general form, SFCAs to macroeconomic modelling are based on the strict discipline of social accounting matrices (SAM), relating all the flows and the stocks of an economy. SFCAs have their origins in the pioneering work of Copeland’s (1947, 1952) flow-of-funds analysis and have recently re-gained prominence among, particularly among Post Keynesians, as a heterodox methodology for macroeconomic modelling based on stock-flow relationships, the flow of funds, interrelated sectoral balance sheets, and double-entry matrices. See Caverzasi and Godin (2015) for a survey of this literature.
- 16.
Throughout, I will use the convention of using the capitalized, non-hyphenated version of writing ‘Post Keynesian’, largely in keeping with the self-identification of the thinkers who use the label. See Davidson (1991), King (2002, pp.9–11), and Lavoie (2014, pp.42–45) for a discussion of the deep semantics behind the four different ways in which the term can be written (hyphenated or not and capitalized or not).
- 17.
The distinction between ‘outside money’ and ‘inside money’ goes back to seminal work of Gurley and Shaw (1960). In this context, ‘outside money’ is either of a fiat nature or backed by some asset that is not in zero net supply within the private sector, whereas ‘inside money’ is an asset backed by any form of private credit that circulates as a medium of exchange.
- 18.
The Lösch-Minsky relationship and its deep connection to the misadventures of Schumpeter’s Das Wesen des Geldes (1970 [1943]) are discussed in more detail elsewhere (Bieri 2016).
- 19.
In this regard, both Lösch’s and Isard’s foray into location theory can be viewed as the template for Krugman’s (1998) discovery of space as the ‘final frontier’.
- 20.
- 21.
- 22.
See Morley (2016) for an overview of the recent literature on macro-finance linkages.
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Acknowledgements
I thank the editors, Randy Jackson and Peter Schaeffer, for their detailed comments and encouragement on previous versions of this chapter. I am indebted to Scott Campbell for rich discussions of the intellectual history of regional science which were critical to my understanding of the Lösch-Schumpeter connection. I am also grateful for input from seminar participants at West Virginia University’s Regional Research Institute and at Virginia Tech, and from session participants at the 2015 Regional Science Association International meetings (Portland, OR), the 2016 Association of American Geographers meetings (San Francisco, CA), and the 2016 History of Economic Society meetings (Durham, NC).
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Bieri, D. (2017). Back to the Future: Lösch, Isard, and the Role of Money and Credit in the Space-Economy. In: Jackson, R., Schaeffer, P. (eds) Regional Research Frontiers - Vol. 1. Advances in Spatial Science. Springer, Cham. https://doi.org/10.1007/978-3-319-50547-3_14
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