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Horizontalism is an approach to money creation theory pioneered by Basil Moore which states Horizontalists and Verticalists: The Macroeconomics of Credit Money, Cambridge University Press. ISBN ; Palley, Thomas ( ). PDF | In Basil Moore published his book Horizontalists and Verticalists: The Macroeconomics of Credit Money, which this year celebrates. The latest issue of the Review of Keynesian Economics includes a special mini- symposium honouring the 25th anniversary of Basil Moore’s.

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Search Google Scholar Export Citation. The yearin which Moore wrote, was, however, not ripe for his view.

Sign in to annotate. It is even more remarkable that he warns already in against the increasing liquidity and financial stability risk relating to the nad of short-term debt instruments by banks. Even though the economies operated largely under commodity standards, they also relied on a significant credit expansion by commercial banks, and the backing by metal was seldom complete.

No one appears responsible. A student of neoclassical Austrian Fritz Machlup, Basil Moore became interested in money and banking very early in his career. For if the monetary base is endogenous and not under the control of the central bank, then the whole process of credit creation must be endogenous as well. Virtually everything written in the monetary, macro- and growth literature — [is] either mis-specified or incomplete.

More than 2 decades before Friedman and Kuttner explained to the inclined reader of the Handbook of Monetary Economics how central banks do it — that is, steering the rates — Moore nailed it down in chapter 5 of his book. Finally, inthe Fed implemented a reform to its discount window, setting the discount rate systematically basis points above the federal funds target rate and thus, after more than 80 years, it put an end to setting the discount rate below market rates.

The developments since then have corroborated his theory and his views in a remarkable way.


The online content platform for Edward Elgar Publishing. Horizontalism influenced monetary circuit theorists to develop the endogenous money approach that was already nascent within Post-Keynesian academic thought. Show Summary Details Basil J. Festschrift in Honor of Basil J. It is remarkable that the Fed never tried to openly justify borrowed reserves targeting as a coherent method.

We too do believe that Moore’s book rightly deserves its place hoeizontalists the history of economic thought.

Basil J. Moore’s Horizontalists and Verticalists: an appraisal 25 years later

European Journal of Economics and Economic Policies: It postulated nothing less than the failure of a key assumption taken for granted by almost every monetary macroeconomist in the twentieth century: As revealed for instance by the German hyperinflation, a central bank can maintain the money rate at too low a level for many years. The last major monograph on monetary theory, Woodford is already fully aligned with Moore’s observations from 15 years earlier.

Nonetheless, theoretical analyses of monetary policy have until recently almost invariably characterised policy in terms of a path for the money supply, and discussions of policy rules in the theoretical literature have mainly considered money-growth rules of one type or another.

Obviously this policy parameter does not have a natural tendency to correct itself. This content is available to you. Moore’s ideas may have shaped the course of post-Keynesian economics.

More Gerticalists us Publish with us Subscribe. Views Read Edit View history. Print Save Cite Email Share. Robert Lucas had issued his critique ohrizontalists econometric policy evaluation 12 years earlier and thereby triggered the avalanche of micro-based macroeconomics that still prevails today. In contrast, we believe that the idea of a natural rate of interest does not put into question the possibility that the central bank controls the actual money rate.

The recent writings of, for example, Godley and Lavoie confirm this point of view.

Horizontalists and Verticalists: 25 years later

Since verticakists control of verticqlists rates takes place through financial transactions which have a balance sheet representation, it provides discipline to explicitly write down these transactions and how they feed through the financial system in a closed system of T-accounts. The foundations for modern New Keynesian monetary models had been laid by Calvo or Blanchard and Kyotaki Under lagged reserve accounting, both the Fed and the banks now know the level of required reserves before the start of the reserve maintenance period.


But we believe that this will hodizontalists until mainstream and in particular textbook economics has freed itself completely from the assumption of an exogenous and controllable money stock that Moore identified to be so mistaken. It states that an increasing demand for loans by bank customers leads to banks making more loans and creating more deposits, without regard to the size of the bank’s available reserves. The heritage left by his book, the intellectual deepness of his thoughts, and the clarity with which his ideas were put forward have, in our view, made Horizontalists and Verticalists a key contribution to monetary economics.

But Moore’s goal gradually comes closer. For us, the only plausible explanation may be that Moore’s message is formulated so vigorously that it still appears overly provoking to vergicalists. Moore was aware of the consequences of removing this central assumption and instead adopting the horizontal view.

Instead reserves will be provided on demand at the bank rate set horizontalisgs the central bank. In our view, Moore interpreted Wicksell too narrowly, by inferring from Wicksell’s natural rate hypothesis that: What may explain why Horizohtalists could formulate his critique of the US Federal Reserve and academic monetary doctrine so early was his strong interest in banking and finance matters.