Suggestions for incremental change to monetary economics courses, drawn from the ten building blocks of Economy Studies.
Change often happens incrementally and slowly. In the economics textbook market, for example, there is an unwritten rule that new textbooks cannot differ more than roughly 15% from the standard textbook in order to be ‘acceptable’ (Colander, 2003).
While our book clearly breaks this rule and proposes more far-reaching and fundamental changes in most chapters, in this chapter we focus instead on how existing courses could be adjusted incrementally. By doing so, we hope to assist educators in improving and adapting the courses they teach without needing to rip them up and start again, as well as helping students make suggestions for how this could be done.
First, we set out the typical contents of current courses. Second, we provide our suggested additions and changes. It is important to note that we pose all these suggestions as potential sources of inspiration, not a checklist of all the things that necessarily should be included. After all, there is a practical limit to what can be taught within a single course.
Typical contents of current courses
Courses on monetary economics, sometimes also called money and banking, focuses on what money, and its role in the economy, is. Policy concerns about how money can best be managed are central and inform what is taught. In contrast to many other courses, many monetary economics courses actively expose students to debates and disagreements within the academic discipline and policy circles. These courses generally distinguish classical (or neoclassical) ideas such as the (short and/or long run) neutrality of money, from Keynesian ideas that argue the real economy is strongly influenced by money and banks. In this way, a variety of (largely neoclassical) models and approaches, such as monetarism and the neoclassical synthesis with neo-Keynesian models, new classical and new Keynesian models, and occasionally post-Keynesian ideas, are discussed.
Frequently used textbooks:
- Monetary Economics by Jagdish Handa
- Monetary Economics: Policy and its Theoretical Basis by Keith Bain and Peter Howells
- Monetary Economics: Theories, Evidence and Policy by David G. Pierce and Peter J. Tysome
- Monetary Theory and Policy by Vincent Walsh
- The Economics of Money, Banking & Financial Markets by Frederic S. Mishkin, Kent Matthews, and Massimo Giuliodori
- Money, Banking, and the Financial System by Glenn Hubbard and Anthony P. O’Brien
- Money and Banking by Robert E. Wright and Vincenzo Quadrini
Suggested additions and changes
Practical skills and real-world knowledge
Every day we use money. Yet few, if any of us, really understand how it works. Courses on monetary economics could benefit from strengthening the link between the abstract theories and daily experiences. This could be done by teaching how the specific monetary system they live in works and which institutions it has and what their roles are. One could bring in case studies and discuss recent developments related to money and public debates concerning monetary issues. To go out of the classroom, one could visit the central bank, a commercial bank, or a government ministry. And to let students practice with real world applications, they could be given assignments about actual cases of issues that such organisations are dealing with, possibly in collaboration with those organisations.
For more detail, see Building Block 2: Know Your Own Economy and Building Block 9: Problems & Proposals.
- Introduction to Central Banking by Ulrich Bindseil & Alessio Fotia, from 2021. This open-access book written by a student and a top central banker and professor, helps to understand to practice of monetary policy.
A range of analytical tools and approaches
Monetary economics courses often already contain different models and theories. The courses could be further improved by also discussing fundamentally different ways of understanding money. Especially the credit and commodity theories of money are highly relevant for students to learn about. Additionally, it can be informative for them to learn about how cultural practices, such as earmarking money, influence how we see and use money in our personal and professional lives.
For more detail, see the section Money in the background material Pragmatic Pluralism.
- The Handbook of Pluralist Economics Education by Jack Reardon, from 2009, chapter 14. This useful book on how to diversify economics programs, includes a chapter full of ideas and suggestions for courses on money, credit and finance.
- Capitalism: Competition, Conflict, Crises by Anwar Shaikh, from 2016, chapters 5 & 15. This impressive and extensive book compares multiple perspectives on many traditional economic topics including money, prices and inflation.
- Introducing a New Economics by Jack Reardon, Maria A. Madi, and Molly S. Cato, from 2017, chapter 8. This ground-breaking textbook introduces money and weaves together pluralist theory and real-world knowledge.
- Economics After The Crisis by Irene van Staveren, from 2015, chapter 11. This well-written textbook sets out the neoclassical, post-Keynesian, social economic and institutional perspectives on money.
- The Economy by The CORE Team, from 2017, chapters 10 & 15. This successful textbook provides an introduction into mainstream ideas and empirical findings on money, credit, inflation and monetary policy.
- Principles of Economics in Context by Jonathan Harris, Julie A. Nelson and Neva Goodwin, most recent edition from 2020, chapters 26 & 27. This useful textbook, which pays particular attention to social and environmental challenges, devotes two chapters to money, banking and monetary policy.
- The Routledge Handbook of Heterodox Economics: Theorizing, Analyzing, and Transforming Capitalism by Tae-Hee Jo, Lynne Chester, and Carlo D’Ippoliti, from 2017, chapters 5, 7, 17, 18 & 19. This broad and diverse book sets out a variety of theories on monetary theories, value, money, and banking.
- Macroeconomics by William Mitchell, L. Randall Wray, Martin Watts, from 2019, chapters 9 & 10. This ground-breaking and much-discussed textbook written by three leaders of Modern Monetary Theory (MMT), introduces students to the different theories of money and currencies.
- The Handbook of Economic Sociology by Neil J. Smelser and Richard Swedberg, from 2005, chapter 16. This extensive and yet accessible book for non-sociologists, provides an impressive and useful overview of the field of economic sociology, including a chapter on the sociology of money and credit.
- Money Creation in the Modern Economy by Michael McLeay, Amar Radia and Ryland Thomas, from 2014. This article, by the Bank of England, helps students understand how money is created and debunks some popular misconceptions.
- Where Does Money Come From? by Josh Ryan-Collins, Tony Greenham, Richard Werner, and Andrew Jackson, from 2011. This accessible book introduces students to different ideas about money and helps students understand recent developments and the technical workings of the monetary system.
- A Handbook of Alternative Monetary Economics by Philip Arestis and Malcolm Sawyer, from 2006. This useful collection of essays introduces students to various different monetary theories, from Marx and Keynes their theories of money and credit to Minsky’s financial instability hypothesis and theories about the endogeneity of money.
- The Social Life of Money by Nigel Dodd, from 2014. This accessible book, written by a leading sociologist, introduces students to the origins of money, its relation to capital and debt, and a variety of ideas on the social, cultural and political dynamics related to money.
- The Social Meaning of Money by Viviana Zelizer, from 1994. This influential book looks at money from a cultural lens, showing how people earmark money and how meaning making processes shape monetary behaviour.
- Money and Government: A Challenge to Mainstream Economics by Robert Skidelsky, from 2019. This useful book introduces students to the key ideas throughout history up to today on macroeconomics, money and the government.
- The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy by Stephanie Kelton, from 2020. This influential bestseller sets out the core ideas of Modern Monetary Theory in an accessible manner and argues for changing how we think about and do monetary and fiscal policy.
Institutions and different ways of organising the economy
The world of money is old and many different monetary systems have existed. Monetary systems are ever evolving and today we are also experiencing this change. To prepare students for their future career in this ever changing world, it is important that they become familiar with different monetary systems that have existed and those that might emerge in the future. Many policy debates concern the different ways in which money can be organised or managed, so in order to participate well in such debates one needs to be aware of the various options. This includes currently popular alternatives such as cryptocurrencies, but also more technical proposals for central bank digital currencies, and old ideas such as the bancor of Keynes. It is practically not possible to teach all options, so we would rather suggest selecting a few, so that students are at least exposed to a variety that gives them a sense of what is possible and what is advocated.
For more detail, see the section Money in the background material Pragmatic Pluralism.
- Modern Financial Systems: Theory and Applications by Edwin H. Neave, from 2009. A guide on how the financial system is organized, with particular attention to its market and nonmarket governance forms and the way in which different financial markets function.
- Comparing Financial Systems by Franklin Allen, Douglas Gale, and Julius Silver, from 2000. A comparison of how the financial systems of the US, UK, France, Germany and Japan are organized and the roles banks and financial markets have in them.
- The Financial System, Financial Regulation and Central Bank Policy by Thomas F. Cargill, from 2017. An extensive introduction into how the financial and monetary system is structured, with attention to the role of central banks, history, and the changing ideas on how the system should be run.
Societal relevance and normative aspects
Money is a complex and often technical subject, but at the same time it concerns everyone and is deeply political. Therefore, it is important to let students think about what the role of money is and should be in society, and how it should be managed and organised. These are big questions about which many visions have been written by more and less famous economists and thinkers. Courses on monetary economics could thus be enriched by including discussions about these competing visions for the future of money.
It is important to state here that the goal is to make students familiar with the various positions and present a balanced overview of arguments for and against. The goal is not to convince them of any particular position, as they need to learn how to critically think for themselves. Currently, some courses fail to live up to this goal as they aim to convince students of one standpoint or the other: teachers pass on their convictions that central banks need to be independent or that monetary policy makers should use the Taylor rule. We are neither for nor against central bank independence or the Taylor rule, we just want to make it clear that these are normative questions. Students need to learn to think independently based on balanced information and thus need to understand different points of view and the arguments behind each.
For more detail, see Building Block 1: Introducing the Economy and Building Block 10: Economics for a Better World.
- The Currency of Politics: The Political Theory of Money from Aristotle to Keynes by Stefan Eich, from 2022. This well-written book helps students understand how political thinking about currency has evolved over time.
- The Routledge Handbook of Ethics and Public Policy by Annabelle Lever and Andrei Poama, from 2019, chapter 14. This useful collection of essays treats many different normative aspects of policy making, including a chapter on the ethics of central banking.
- The Oxford Handbook of Ethics and Economics by Mark D. White, from 2019, chapter 17. This extensive collection of essays explores the many moral dimensions of economics, including a chapter on the ethics of money and finance.
- Principles of Sustainable Finance by Dirk Schoenmaker and Willem Schramade, from 2018. This useful book looks at finance in relation to environmental challenges and helps students understand how it can promote rather than counter sustainability.
- Climate change challenges for central banks and financial regulators by Emanuele Campiglio, Yannis Dafermos, Pierre Monnin, Josh Ryan-Collins, Guido Schotten & Misa Tanaka, from 2018. This insightful short article provides students with an overview of the issues and debates related to climate change and its (potential) impact on the financial system.
- The green swan: Central banking and financial stability in the age of climate change by Patrick Bolton, Morgan Despres, Luiz Awazu Pereira da Silva, Frédéric Samama, & Romain Svartzman, from 2020. This BIS report reviews how climate risks, and the radical uncertainty that comes with it, can be addressed through innovative monetary policy making use of forward-looking scenario-based analysis.
- The politics of central bank independence by José Fernández-Albertos, from 2015. This insightful review article provides an overview of the literature on the arguments for, and against, central bank independence, its consequences, variations and changing character.
- A Fresh Look at Central Bank Independence by Paul Wachtel and Mario I. Blejer, from 2020. This insightful article introduces students to the history of central bank independence as an idea and practice.
- Financial Citizenship: Experts, Publics, and the Politics of Central Banking by Annelise Riles, from 2018. This accessible short book helps students understand how monetary policy is made and argues there is a democratic legitimacy crisis that should be addressed.
- The End of Alchemy: Money, Banking and the Future of the Global Economy by Mervyn King, from 2016. Written by the Governor of the Bank of England during the financial crisis, this book gives students an insider as well as critical view of the financial world.
- Between Debt and the Devil: Money, Credit, and Fixing Global Finance by Adair Turner, from 2015. Another highly influential policy economist reflecting on how finance is organized and how this could be improved.
- The Production of Money by Ann Pettifor, from 2017. This accessible book helps students understand how money is created, what role it plays in our economies, and assesses popular policy options, such as helicopter money and green quantitative easing.
- The End of Banking: Money, Credit, and the Digital Revolution by Jonathan McMillan, from 2014. This thought-provoking book argues that the digital revolution has fundamentally changed the world of money and that we no longer need banking.
Courses on monetary economics often already include some history of money and the ideas about it. We applaud this and encourage teachers to do so even more. By devoting more teaching time to history the danger of oversimplifying reality can be reduced and more of the complexity can be brought out. The history can be treated in separate lectures, but it can also be integrated in other ones by explaining the origins of a theory or applying it to a specific historical context.
For more detail, see Building Block 3: Economic History and Building Block 4: History of Economic Thought & Methods.
- A Companion to the History of Economic Thought by Warren J. Samuels, Jeff E. Biddle, and John B. Davis, from 2003, chapter 26. An extensive and detailed collection of contributions covering many periods and developments in the history of economic thought, with one chapter devoted to the history of postwar monetary and macroeconomics.
- Money and Government: The Past and Future of Economics by Robert Skidelsky, from 2018. This well-written and insightful book introduces readers to historical and current debates about the state and macroeconomy, with particular attention to neoclassical and Keynesian ideas.
- The Nature of Money by Geoffrey Ingham, from 2004. This book provides an overview of different theories about the fundamental nature and working of money and credit in the economy.
- Debt: The First 5000 Years by David Graeber, from 2011. This bestseller explores the history and anthropology of money and debt, emphasizing its interaction with broader social institutions.
- Globalizing capital: A history of the international monetary system by Barry Eichengreen, most recent edition from 2019. A well written history helping students understand how money and finance have changed overtime, from the gold standard system and interwar instability to the Bretton Woods system and the last decades.
- A Concise History of International Finance: From Babylon to Bernanke by Larry Neal, from 2015. A detailed history of how finance has evolved over time, with particular attention to financial innovations, crises, government regulation, and international dynamics.
- The Oxford Handbook of Banking and Financial History by Youssef Cassis, Catherine R. Schenk, and Richard S. Grossman, from 2016. An impressive collection of essays on the history of finance, with its many different aspects, from banking types and varieties of financial markets, to financial crises and the role of the state.
- Money: The true history of a made-up thing by Jacob Goldstein, from 2020. This accessible introduction explores how money has emerged and evolved over time, from ancient and early modern history to recent developments with digital cash and cryptocurrencies.
- Crashed: How a decade of financial crises changed the world by Adam Tooze, from 2018. A detailed and well-written account of the global financial crisis of 2007-2008 and the decade that followed it, with accessible explanations of the technical workings of finance, monetary policy, and theories about it as well as sharp descriptions of the role of politics and close up personal accounts of individuals making decisions.
What to take out
To create space for the above suggested additions, we advise to focus more on the key ideas and intuitions behind the taught models and devote less teaching time to their technicalities and mathematics. As teaching students to reproduce and work through mathematical models often takes up a large part of the teaching time, this would give the teachers the opportunity to devote more time to practical knowledge, the relevance, institutions, and history. Furthermore, a more even balance between neoclassical economics and other economic approaches could be achieved by decreasing the number of neoclassical ideas and models that are taught.