48:
875:
863:
1013:, argued against increased spending by putting forward the "Treasury view". Simply put the Treasury view was the view that fiscal policy could only move resources from one use to another, and would not affect the total flow of economic activity. Therefore, neither government spending nor tax cuts could boost employment and economic activity. This view can historically be traced back to various statements of
1158:: if (for a given money supply) velocity of money increases, (nominal) GDP increases, as GDP = Money Supply * Velocity of Money: a dollar of government spending need not crowd out a dollar of private spending, either as an accounting matter or as a behavioral matter, as it may increase velocity of money.
974:
In his 1929 budget speech, Winston
Churchill explained, "The orthodox Treasury view ... is that when the Government borrow in the money market it becomes a new competitor with industry and engrosses to itself resources which would otherwise have been employed by private enterprise, and in the process
1106:
Positions on this argument are far apart: advocates of the accounting argument for the
Treasury view argue that as a matter of accounting (by definition) fiscal stimulus cannot have an economic impact, while critics argue that this argument is fundamentally wrong-headed and mistaken.
1170:
in the converse context (fiscal restraint via tax increases having a braking effect, as opposed to fiscal stimulus having a stimulating effect) begins with the NIPA argument above, then continues from the accounting to an economic model:
1052:) have recently advocated the strong form of this view – that of no possible impact. However, it is categorically rejected by Keynesian macroeconomics, which holds that economic activity depends on aggregate spending (at least in the
1227:
This analysis, while disputed by
Keynesians (who argue that the effects of fiscal stimulus are more significant than Friedman argues), is considered a legitimate approach, and not dismissed out of hand as wrong-headed.
981:
reject this view, and often use the term "Treasury view" when criticizing this and related arguments. The term is sometimes conflated with the related position that fiscal stimulus has
1645:
1022:
1555:
1265:
1087:
Arguments equivalent to the
Treasury view are frequently rediscovered independently, and are often in turn criticized by Keynesian macroeconomists.
1222:
To have a significant impact on the economy, a tax increase must somehow affect monetary policy–the quantity of money and its rate of growth.
1556:"Fama's Fallacy, Take I: Eugene Fama Rederives the "Treasury View": A Guestpost from Montagu Norman, former Governor of the Bank of England"
1627:
905:
837:
1001:) tried to persuade governments that increased government spending would mitigate the situation and reduce unemployment. In the
1254:
F.W. Leith-Ross to Sir
Richard Hopkins and P.J. Grigg, 3 April 1929, quoted in G.C. Peden (2004), Keynes and His Critics, p. 80
1099:(NIPA) to say that, as a matter of accounting, government spending must come from somewhere, and thus has no net impact on
1096:
1186:
ome of the funds not borrowed by the
Federal government may be added to idle cash balances rather than spent or loaned.
1065:
1684:
1609:
1391:
1307:
1139:
GDP, and that changes in government spending are only exactly offset by decreases in other spending or investment
1487:
898:
1707:
1286:
236:
17:
498:
1728:
1723:
1464:
1459:
1042:
1473:
1733:
1038:
1034:
951:
923:
847:
67:
57:
1573:
1738:
1666:
1357:
891:
841:
371:
361:
251:
1591:
985:
impact on economic activity, a view that is not incompatible with mainstream macroeconomic theory.
820:
558:
513:
366:
135:
79:
1026:, provided a theoretical foundation for how fiscal stimulus can increase economic activity during
573:
523:
331:
321:
281:
271:
178:
101:
1646:"Time to Bang My Head Against the Wall Some More (Pre-Elementary Monetary Economics Department)"
1743:
1191:
In addition, it takes time for borrowers and lenders to adjust to reduced government borrowing.
1079:
have advocated a weak form of this view, that fiscal policy has temporary and limited effects.
693:
538:
276:
216:
173:
120:
1061:
827:
508:
483:
468:
326:
266:
246:
241:
1509:
1010:
1006:
578:
400:
351:
316:
256:
221:
125:
115:
62:
8:
998:
978:
804:
613:
435:
376:
301:
291:
261:
188:
96:
473:
1529:
1498:
1480:, Myron S. Scholes Professor of Finance, University of Chicago Booth School of Business
1151:
832:
788:
593:
430:
425:
405:
356:
296:
286:
231:
226:
198:
193:
163:
31:
1176:
To find any net effect on private spending, one must look farther beneath the surface.
1155:
1143:
Keynesians argue that fiscal stimulus can increase GDP, thus making this point moot.
723:
698:
608:
488:
445:
381:
346:
336:
168:
130:
86:
1332:
648:
1521:
1477:
1100:
994:
947:
773:
718:
703:
688:
673:
603:
583:
563:
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391:
341:
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306:
653:
1214:
1167:
1072:
867:
778:
743:
708:
643:
568:
553:
440:
415:
410:
386:
158:
153:
1551:
1468:
1451:
1150:, is that these make assumptions about saving and investment, and ignore basic
1002:
919:
798:
783:
748:
733:
713:
683:
503:
420:
110:
106:
533:
1717:
1447:
931:
763:
753:
728:
668:
663:
658:
638:
628:
598:
588:
493:
396:
1033:
Opinions are currently sharply divided on the
Treasury view, with different
47:
1662:
1497:, vol. 80, no. 5, University of Chicago Press, pp. 914–915,
1119:... commits one of the most basic fallacies in economics — interpreting an
1111:
1076:
1057:
1014:
939:
879:
793:
738:
633:
623:
618:
543:
91:
1547:
1483:
1455:
1147:
1049:
768:
758:
548:
183:
1533:
1502:
678:
478:
1053:
1027:
959:
943:
528:
459:
39:
1525:
1628:"Fama's Fallacy V: Are There Ever Any Wrong Answers in Economics?"
1426:
1424:
946:. This view was most famously advanced in the 1930s (during the
1095:
One line of argument is to use the accounting equations in the
862:
1041:
advocate a form of the
Treasury view, whereas economists from
1421:
1287:"Background on "fresh water" and "salt water" macroeconomics"
1201:
However, any net decrease in spending from these sources is
1056:). It is related to, and at times equated with, theories of
993:
In the late 1920s and early 1930s, during the height of the
1708:
Background on "fresh water" and "salt water" macroeconomics
1349:
1020:
Keynes argued against this position, and particularly in
1512:(1925), "Public Expenditure and the Demand for Labour",
1005:, the staff of the Chancellor of the Exchequer, notably
1474:
Fiscal
Stimulus, Fiscal Inflation, or Fiscal Fallacies?
1299:
966:
amount of private spending or investment, and thus has
1048:
A number of prominent financial economists (including
1037:
holding contradicting views. Many in the "freshwater"
975:
raises the rent of money to all who have need of it."
1495:
Journal of
Political Economy 80:5 (September–October)
1546:
1023:
The General Theory of Employment, Interest and Money
938:
effect on the total amount of economic activity and
1493:Friedman, Milton (1972), "Comment on the Critics",
1715:
958:Any increase in government spending necessarily
1465:Obama's Job-Creation Program Flunks Basic Math
1460:Keynes Revival Makes Cato a Lonely Hearts Club
1131:That is, NIPA accounting equations hold for a
899:
1610:"Fama's Fallacy IV: The Decline of Chicago"
1383:
1257:
906:
892:
1278:
1685:"A Dark Age of macroeconomics (wonkish)"
1492:
1415:
1135:GDP: the point of fiscal stimulus is to
954:. The position can be characterized as:
1682:
1661:
1508:
1389:
1355:
1308:"Saving, investment, Keynes, Evolution"
1305:
1243:
14:
1716:
1643:
1625:
1607:
1589:
1571:
1458:economist, quoted by Caroline Baum in
1333:"Government Spending Is No Free Lunch"
1330:
1324:
1284:
1097:National Income and Product Accounts
997:, many economists (most prominently
24:
1263:
1066:Policy Ineffectiveness Proposition
25:
1755:
1574:"Fama's Fallacy II: Predecessors"
1161:
1650:Grasping Reality with Both Hands
1632:Grasping Reality with Both Hands
1614:Grasping Reality with Both Hands
1596:Grasping Reality with Both Hands
1578:Grasping Reality with Both Hands
1560:Grasping Reality with Both Hands
1082:
942:, even during times of economic
873:
861:
46:
1408:
148:Concepts, theory and techniques
1392:"A Dark Age of Macroeconomics"
1374:
1248:
1237:
1071:Noted macroeconomists such as
1045:reject the view as incorrect.
950:) by the staff of the British
13:
1:
1441:
1436:
1090:
1683:Krugman, Paul (2009-01-27),
1390:Krugman, Paul (2009-01-27).
1356:Krugman, Paul (2008-12-24).
1331:Barro, Robert (2009-01-22).
1306:Krugman, Paul (2009-01-30).
1231:
1146:Another Keynesian reply, by
7:
1644:DeLong, Brad (2009-01-29),
1626:DeLong, Brad (2009-01-16),
1608:DeLong, Brad (2009-01-15),
1590:DeLong, Brad (2009-01-14),
1572:DeLong, Brad (2009-01-14),
1488:Bailouts and Stimulus Plans
1103:, unemployment, or income.
1039:Chicago school of economics
1035:schools of economic thought
952:Chancellor of the Exchequer
924:history of economic thought
10:
1760:
1592:"Fama's Fallacy, Take III"
1540:
988:
1667:"Keynes's difficult idea"
1430:DeLong, Fama's Fallacy IV
1358:"Keynes's Difficult Idea"
1701:
1380:DeLong, Fama's Fallacy I
1166:An argument advanced by
1125:behavioral relationship.
136:JEL classification codes
1213:and instead advocating
1203:certain to be temporary
322:Industrial organization
179:Computational economics
1110:A Keynesian reply, by
972:
930:is the assertion that
922:, particularly in the
174:Experimental economics
1062:Ricardian equivalence
970:on economic activity.
956:
1710:, by Robert Waldmann
1217:as the bottom line:
1141:if GDP is unchanged.
1011:Frederick Leith-Ross
1007:Ralph George Hawtrey
979:Keynesian economists
401:Social choice theory
1729:Keynesian economics
1724:Classical economics
1337:Wall Street Journal
1207:likely to be minor.
1121:accounting identity
999:John Maynard Keynes
868:Business portal
189:Operations research
169:National accounting
1734:Monetary economics
1689:The New York Times
1671:The New York Times
1396:The New York Times
1362:The New York Times
1312:The New York Times
1285:Waldmann, Robert.
1152:monetary economics
199:Industrial complex
194:Middle income trap
1739:Political economy
1467:, Caroline Baum,
1156:velocity of money
1043:saltwater schools
916:
915:
16:(Redirected from
1751:
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1696:
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1679:
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1604:
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1566:
1536:
1505:
1478:John H. Cochrane
1431:
1428:
1419:
1412:
1406:
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1403:
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1387:
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1318:
1303:
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1293:
1282:
1276:
1275:
1273:
1272:
1266:"Fama's Fallacy"
1261:
1255:
1252:
1246:
1241:
1101:aggregate demand
995:Great Depression
948:Great Depression
908:
901:
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880:Money portal
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866:
865:
362:Natural resource
154:Economic systems
50:
27:
26:
21:
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1526:10.2307/2548008
1448:Daniel Mitchell
1444:
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1253:
1249:
1242:
1238:
1234:
1215:monetary policy
1168:Milton Friedman
1164:
1093:
1085:
1073:Milton Friedman
991:
912:
874:
872:
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853:
852:
823:
813:
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811:
810:
574:von Böhm-Bawerk
462:
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159:Economic growth
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82:
80:classifications
23:
22:
15:
12:
11:
5:
1757:
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1726:
1712:
1711:
1703:
1700:
1699:
1698:
1680:
1665:(2008-12-24),
1659:
1641:
1623:
1605:
1587:
1569:
1554:(2009-01-14),
1552:Montagu Norman
1542:
1539:
1538:
1537:
1506:
1490:
1481:
1471:
1462:
1452:Cato Institute
1443:
1440:
1438:
1435:
1433:
1432:
1420:
1407:
1382:
1373:
1348:
1323:
1298:
1277:
1264:DeLong, Brad.
1256:
1247:
1235:
1233:
1230:
1225:
1224:
1211:
1210:
1194:
1193:
1188:
1181:specifically:
1179:
1178:
1163:
1162:Economic model
1160:
1129:
1128:
1092:
1089:
1084:
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1003:United Kingdom
990:
987:
920:macroeconomics
914:
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367:Organizational
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36:
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9:
6:
4:
3:
2:
1756:
1745:
1744:Fiscal policy
1742:
1740:
1737:
1735:
1732:
1730:
1727:
1725:
1722:
1721:
1719:
1709:
1706:
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1690:
1686:
1681:
1672:
1668:
1664:
1663:Krugman, Paul
1660:
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1615:
1611:
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1561:
1557:
1553:
1549:
1545:
1544:
1535:
1531:
1527:
1523:
1520:(13): 38–48,
1519:
1515:
1511:
1510:Hawtrey, R.G.
1507:
1504:
1500:
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1491:
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1479:
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1466:
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1445:
1427:
1425:
1417:
1416:Friedman 1972
1411:
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1338:
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1313:
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1127:
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1117:
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1108:
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1102:
1098:
1088:
1083:Arguments for
1080:
1078:
1074:
1069:
1067:
1063:
1059:
1055:
1051:
1046:
1044:
1040:
1036:
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1018:
1016:
1012:
1008:
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986:
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980:
976:
971:
969:
968:no net impact
965:
961:
955:
953:
949:
945:
941:
937:
933:
932:fiscal policy
929:
928:Treasury view
925:
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469:de Mandeville
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372:Participation
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129:
127:
124:
122:
119:
117:
114:
112:
108:
105:
103:
102:International
100:
98:
95:
93:
90:
88:
85:
84:
81:
78:Branches and
75:
74:
69:
66:
64:
61:
59:
56:
55:
54:
53:
49:
45:
44:
41:
38:
37:
33:
29:
28:
19:
18:Treasury View
1692:, retrieved
1688:
1674:, retrieved
1670:
1653:, retrieved
1649:
1635:, retrieved
1631:
1617:, retrieved
1613:
1599:, retrieved
1595:
1581:, retrieved
1577:
1563:, retrieved
1559:
1548:DeLong, Brad
1517:
1513:
1494:
1410:
1399:. Retrieved
1395:
1385:
1376:
1365:. Retrieved
1361:
1351:
1340:. Retrieved
1336:
1326:
1315:. Retrieved
1311:
1301:
1290:. Retrieved
1280:
1269:. Retrieved
1259:
1250:
1244:Hawtrey 1925
1239:
1226:
1221:
1212:
1206:
1202:
1200:
1196:concluding:
1195:
1190:
1185:
1180:
1175:
1165:
1145:
1140:
1136:
1132:
1130:
1124:
1120:
1118:
1112:Paul Krugman
1109:
1105:
1094:
1086:
1077:Robert Barro
1070:
1047:
1032:
1021:
1019:
992:
982:
977:
973:
967:
963:
957:
940:unemployment
935:
927:
917:
838:Publications
803:
426:Sociological
399: /
297:Geographical
277:Evolutionary
252:Digitization
217:Agricultural
121:Mathematical
92:Econometrics
1484:Eugene Fama
1456:supply-side
1148:Brad DeLong
1050:Eugene Fama
674:von Neumann
327:Information
267:Engineering
247:Development
242:Demographic
184:Game theory
126:Methodology
1718:Categories
1694:2009-01-28
1676:2009-01-28
1655:2009-01-28
1637:2009-01-28
1619:2009-01-28
1601:2009-01-28
1583:2009-01-28
1565:2009-01-28
1442:Proponents
1437:References
1401:2011-08-18
1367:2011-08-18
1342:2009-02-26
1317:2011-08-18
1292:2009-02-26
1271:2009-02-26
1154:, notably
1114:, is that
1091:Accounting
1064:, and the
1028:recessions
983:negligible
960:crowds out
833:Economists
704:Schumacher
609:Schumpeter
579:von Wieser
499:von Thünen
460:economists
436:Statistics
431:Solidarity
352:Managerial
317:Humanistic
312:Historical
257:Ecological
222:Behavioral
116:Mainstream
1514:Economica
1469:Bloomberg
1232:Footnotes
1058:Say's law
1054:short run
1015:Say's law
944:recession
749:Greenspan
714:Samuelson
694:Galbraith
664:Tinbergen
604:von Mises
599:Heckscher
559:Edgeworth
377:Personnel
337:Knowledge
302:Happiness
292:Financial
262:Education
237:Democracy
131:Political
97:Heterodox
40:Economics
842:journals
828:Glossary
779:Stiglitz
744:Rothbard
724:Buchanan
709:Friedman
699:Koopmans
689:Leontief
669:Robinson
554:Marshall
458:Notable
406:Regional
382:Planning
357:Monetary
287:Feminist
232:Cultural
227:Business
32:a series
30:Part of
1541:Critics
1534:2548008
1503:1830418
1450:of the
989:History
848:Schools
840: (
799:Piketty
794:Krugman
659:Kuznets
649:Kalecki
624:Polanyi
514:Cournot
509:Bastiat
494:Ricardo
484:Malthus
474:Quesnay
446:Welfare
416:Service
87:Applied
63:Outline
58:History
1532:
1501:
1137:change
926:, the
784:Thaler
764:Ostrom
759:Becker
754:Sowell
734:Baumol
639:Myrdal
634:Sraffa
629:Frisch
619:Knight
614:Keynes
589:Fisher
584:Veblen
569:Pareto
549:Menger
544:George
539:Jevons
534:Walras
524:Gossen
392:Public
387:Policy
342:Labour
307:Health
164:Market
1702:Other
1530:JSTOR
1499:JSTOR
1476:, by
1133:fixed
1123:as a
964:equal
821:Lists
789:Hoppe
774:Lucas
739:Solow
729:Arrow
719:Simon
684:Lange
679:Hicks
654:Röpke
644:Hayek
594:Pigou
564:Clark
479:Smith
441:Urban
421:Socio
411:Rural
111:Macro
107:Micro
68:Index
1454:, a
1205:and
1075:and
1009:and
934:has
805:more
529:Marx
519:Mill
504:List
1522:doi
962:an
918:In
769:Sen
489:Say
347:Law
1720::
1687:,
1669:,
1648:,
1630:,
1612:,
1594:,
1576:,
1558:,
1550:;
1528:,
1516:,
1486:,
1423:^
1394:.
1360:.
1335:.
1310:.
1068:.
1060:,
1030:.
1017:.
936:no
109:/
34:on
1524::
1518:5
1418:)
1414:(
1404:.
1370:.
1345:.
1320:.
1295:.
1274:.
907:e
900:t
893:v
844:)
20:)
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