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My research uses macroeconomics, game theory, and computational modeling to study how humans coordinate with each other using tools like money, language, and norms.
Published Research
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Money’s Mutation of the Modern Moral Mind: The Simmel Hypothesis and the Cultural Evolution of WEIRDness
2023 — Journal of Evolutionary Economics, 33(5): 1571-1592.
Argues that money made us WEIRD by removing the cultural-evolutionary constraints on the sacred values that previously coordinated the division of labor.
A great number of theories have been offered as to the root of the difference between the modern mind and the premodern mind. One neglected account comes from Georg Simmel’s Philosophy of Money, which argues that the rise of the mass money economy in the early modern era encouraged calculative modes of thought, and took over the coordinating functions of a number of previously important institutions such as kin and religious networks, thus “freeing” the latter to evolve without strong material feedback. This paper considers monetary exchange and kin/religious networks as alternative strategies for coordinating the division of labor, and shows how the widespread availability of the former can alter the cultural-evolutionary constraints on the latter. This dynamic explains a number of salient differences between modern and premodern moral life such as money’s profaning character, as well as the sociological significance of modern moral phenomena like individualism, rationalism, and fundamentalism.
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Inside and Outside Perspectives on Institutions: An Economic Theory of the Noble Lie
2021 — Journal of Contextual Economics, 140(1): 3-30.
Argues that social cooperation requires a divergence between subjective preferences and objective payoffs, and discusses implications for governance.
If there exist no incentive or selective mechanisms that make cooperation in large groups incentive-compatible under realistic circumstances, functional social institutions will require a divergence between subjective preferences and objective payoffs – a “noble lie”. This implies the existence of irreducible and irreconcilable “inside” and “outside” perspectives on social institutions; that is, between foundationalist and functionalist approaches, both of which have a long pedigree in political economy. The conflict between the two, and the inability in practice to dispense with either, has a number of surprising implications for human organizations, including the impossibility of algorithmic governance, the necessity of discretionary enforcement in the breach, and the difficulty of an ethical economics of institutions.
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What’s Holding Back Blockchain Finance? On the Possibility of Decentralized Autonomous Finance — With James Caton
2022 — Quarterly Review of Economics and Finance, 84: 420-429.
Lays out the game theory of why finance is a harder problem than monetary exchange, argues that pure algorithmic governance is impossible, and discusses technologies that can interface between algorithmic and traditional governance structures.
Despite the past decade’s rapid innovation in adapting blockchain technology to new uses, financial intermediation remains elusive except in basic and highly collateralized forms. We introduce the concept of the technical frontier to delimit the kinds of interactions that can feasibly be structured algorithmically among pseudonymous agents, as on a blockchain, and show that lending and financial intermediation – unlike monetary exchange – lie outside it, even in simple forms. The path forward for truly blockchain-native financial applications, therefore, must involve the integration of real-world identity information in order to disincentivize defection. We discuss several potential technologies for doing so, and conclude that such integration is possible without compromising pseudonymity, provided real-world identity is available in the breach.
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Unmixing the Metaphors of Austrian Capital Theory
2022 — Review of Austrian Economics, 35: 163-176.
Argues that Austrian capital theory can only make progress with a durable capital metaphor rather than a circulating capital metaphor, and breaking free from business cycle theory.
A complement of metaphors inherited from the classical era has held back progress in Austrian capital theory (ACT). In particular, the attachment to circulating capital as the paradigmatic capital good, largely motivated by the business cycle theory, has locked ACT into a nonoperational point-output model of production. This paper draws out a distinct flow-output approach from work by Lachmann, Lewin, and Cachanosky, contrasts its associated metaphors and paradigms with those of the canonical Hayek-Garrison model, and argues that the former has the potential to bolster both the analytical coherence and the empirical relevance of ACT that it has so far found elusive. By focusing on the investment project rather than the capital good as the object of planmaking, the flow-output approach affirms the core appeal of ACT – a heterogeneous capital structure and a market process approach – by declaring independence from the business cycle theory.
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The Feudal Origins of the Western Legal Tradition — With Hilton Root
2020 — Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft (Ordo), 70(1): 3-20.
Argues that strong-but-limited Western states stem from feudalism’s hybridization of Roman and Germanic law, which represent two different strategies on the part of the population in response to domination.
This paper draws a distinction between ‘communitarian’ and ‘rationalist’ legal orders on the basis of the implied political strategy. We argue that the West’s solution to the paradox of governance – that a government strong enough to protect rights cannot itself be restrained from violating those rights – originates in certain aspects of the feudal contract, a confluence of aspects of communitarian Germanic law, which enshrined a contractual notion of political authority, and rationalistic Roman law, which supported large-scale political organization. We trace the tradition of strong but limited government to the conflict between factions with an interest in these legal traditions – nobles and the crown, respectively – and draw limited conclusions for legal development in non-Western contexts.
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Bubbles and Broad Monetary Aggregates: Toward a Consensus Approach to Business Cycles
2019 — Eastern Economic Journal, 45(2): 250-268.
Argues that different approaches to business cycle research can be reconciled by measuring the money supply correctly.
A challenge for quantity-theoretic explanations of business cycles is that recessions manifest despite central banks’ scrupulousness to avoid falls in monetary aggregates, a fact which would seem to indicate a structural explanation. This paper argues that a broader and theoretically richer Divisia aggregate – which reflects changes in financial market liquidity even without changes in the quantity of any particular asset – can reconcile these two approaches. Liquidity shocks such as the rise and collapse of asset bubbles can drive excess supply of and demand for money, respectively, that quantity theorists point to as determinative of short-run economic fluctuations.
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Money and its Institutional Substitutes: The Role of Exchange Institutions in Human Cooperation
2018 — Journal of Institutional Economics, 14(4): 689-714.
A framework for thinking about monetary exchange as a coordinating institution, and comparing it to alternative coordinating institutions.
This paper offers an increasing returns model of the evolution of exchange institutions building on Smith’s dictum that “the division of labor is limited by the extent of the market”. Exchange institutions are characterized by a tradeoff between fixed and marginal costs: the effort necessary to execute an exchange may be economized by up-front “investment” in strategies to facilitate the publication and accounting of trading histories. Increases in the size of the exchange network select for higher-fixed-cost exchange institutions, beginning with autarky, through various intermediate stages, and finally to mass monetary exchange. By identifying the relevant fixed costs of money and its institutional substitutes across time, the paper both accounts for the persistence of premonetary exchange institutions, despite the “inevitability” of monetary exchange that seems to be a feature of traditional models of the origin of money, and illuminates the forces driving the transition from one to another.
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Cryptocurrency and the Problem of Intermediation
2016 — Independent Review, 20(4): 569-588.
Argues that the root of cryptocurrency volatility is the lack of financial intermediation, and offers some paths forward.
The volatility of Bitcoin has caused many to dismiss its potential. Bitcoin is, however, very similar to another money commodity with an essentially rigid supply that saw much greater historical success: gold. The paper considers the factors that allowed currencies on the gold standard to adjust their short-run nominal supply in response to velocity shocks, in particular fractional reserve banking. The benefits and the hurdles of establishing financial intermediation in crypto-currency are considered, as well as the possibility of managing the money supply to create a macroeconomically stable crypto-currency without the need for intermediation at all. Such schemes ultimately require an existing market of intermediaries in order to provide any benefits, the emergence of which governments are for the moment well-positioned to prevent.
Book Chapters
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Finance in a Theory of Money
2023 — Ch. 12 of Boettke & Coyne (eds.), The Legacy of Richard E. Wagner. 2023, Mercatus.
Advances an ecological perspective on liquidity provision and the money supply, arguing that a Divisia index represents a subjectivist conception of money, and exploring new implications.
Orthodox monetary theory is kneecapped by an overly concrete conception of money, which has led in recent decades to a reaction of moneyless models of monetary policy. By contrast, this paper generalizes monetary theory in terms of the plans of economic agents to hold and dispose of liquidity in a much wider variety of forms than is usually taken account of. We argue that (1) a Divisia index is closer to the subjectivist theoretical meaning of the money supply than are the standard monetary aggregates of M0-M2, (2) a broader perspective on liquidity services suggests a coordinationist perspective on both financial development and business cycles where buffer stocks of real goods play a central role, (3) the supply of liquidity is best conceived of in network terms, and (4) the observation that global liquidity is a better predictor of domestic inflation than is domestic liquidity, can be explained as an artifact of the failure of simple-sum monetary aggregates to track the actual role of liquid assets in spending plans.
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Signals and Incentives in Blockchain Applications
2022 — Ch. 8 of James Caton (ed.), The Economics of Blockchain and Cryptocurrency: A Transaction Costs Revolution. 2022, Edward Elgar.
An exploration of the problem of when signals can be trusted, how blockchains solve this problem for money, and how other applications are more difficult.
Since Bitcoin’s invention in 2009, permissionless blockchain technology has gone through several waves of interest and development. While applications related to payments have advanced at breakneck speed, progress in financial and nonmonetary applications have largely failed to live up to initial excitement. This chapter considers the incentives facing network participants in light of the fundamental problem of signal verification. Doing so can account for both the successes and the failures: first, why are payments a particularly suitable problem to be solved by blockchain technology? And second, what additional problems do financial and nonmonetary applications pose?
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Network Formation and the Emergence of Law: From Feudalism to Small-World Connectivity — With Hilton Root
2020 — Ch. 5 of Hilton Root, Network Origins of the Global Economy. 2020, Cambridge.
Argues that the early entrenchment of an independent legal profession in Europe was key to the emergence of the distinctive features of Western political systems.
The second great transition is the organic development of the Western legal system – from legal frameworks for succession and transmitting landed property to the oaths of fealty, on into a macroscopic nexus of institutions, practices, and beliefs that formed a hypernetwork within the wider society. The evolution of the legal tradition, forging a system of strong but limited states, is a story of increasing returns. No legal document or pact like the Magna Carta exists in China. Its aristocracies never gained sufficient military, political, or ideological strength to demand rights that could constrain the sovereign via institutions. Imperial officialdom did not intend to negotiate with a corporate body in possession of its own resources and rights. Nor did the bureaucratic clans have any incentive to stem the centralization of authority. They acted as representatives of the state’s interests, not those of civil society. The legalist/Confucian state exercised authority over economic resources to an extent that no European monarch could hope to accomplish. It also counterbalanced power with a code of ethical responsibilities to ensure the basic needs of the population.
Working Papers
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Helicopters and the Neutrality of Money
An agent-based model showing that, contrary to the conventional wisdom, “helicopter drops” distort relative prices more than traditional open-market operations.
Models of monetary expansion, following Friedman (1969), tend to abstract away from the relative price effects of monetary policy by assuming that the central bank distributes money directly to agents via helicopter. However, in light of the recent entertainment of helicopter drops as a potential monetary policy tool, this paper argues that it would be a mistake to conclude from such models that actual helicopter drops are relative-price neutral. Indeed, they are likely to be significantly more distortive than open market operations, a fact obscured by the representative agent construction used in the standard cash-in-advance construction. This paper develops a computational heterogeneous-agent model to compare the relative price effects of helicopter drops and open market operations, and to avoid the inability of the standard cash-in-advance model to account for persistent wealth effects. The results highlight the key role of financial systems in distributing changes in the money stock with minimal economic disturbance.
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Against Savings: A Suggested Exposition of the Markets for Money and Credit
Argues that “savings” has a variety of mutually incompatible meanings in macroeconomics, and that each one can and should be replaced by a more precise term.
The notion of savings in economics has a variety of mutually incompatible meanings. This paper goes through these various meanings and argues that, for the sake of clarity, it can and should be replaced with more precise terms. The paper then offers an “augmented” loanable funds model. Unlike the standard model, which depicts unintermediated lending, our model 1) does not identify the supply of loanable funds with “savings”, and 2) explicitly connects the banking sector to the supply of money with something more theoretically robust than a simple money multiplier. The resulting construction clarifies the relationship between the markets for money and credit, and is more faithful to the image of banks as creators of credit, while still retaining the pedagogical simplicity of the original loanable funds model.
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Helipad: A Framework for Agent-Based Modeling in Python
A writeup of a powerful framework for writing a variety of types of agent-based models in Python.
Agent-based modeling tools commonly trade off usability against power and vice versa. On the one hand, full development environments like NetLogo feature a shallow learning curve, but have a relatively limited proprietary language. Others written in Python or Matlab, for example, have the advantage of a full-featured language with a robust community of third-party libraries, but are typically more skeletal and require more setup and boilerplate in order to write a model. Helipad is introduced to fill this gap. Helipad is a new agent-based modeling framework for Python with the goal of a shallow learning curve, extensive flexibility, minimal boilerplate, and powerful yet easy to set up visualization, in a full Python environment. We summarize Helipad’s general architecture and capabilities, and briefly preview a variety of models from a variety of disciplines, including multilevel models, matching models, network models, spatial models, and others.
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Cities in the Rise and Decline of Civilizations
An agent-based model of the long dynamics of human capital and urbanization, intended to explain the numerous urban abandonments in the archaeological record.
This paper offers a computational population model of urbanization as a time-inconsistent process endogenously driving both the rise and the decline of civilizations. Economic growth in the early stages of a civilization is driven by increasing returns to the local agglomeration of human capital. However, the urbanization process also raises the opportunity costs of childrearing, interfering with the intergenerational transmission of that human capital. Economic growth continues so long as the network effects continue to draw human capital from rural areas, and the civilization stagnates once that pool is depleted and the decay of human capital begins to overwhelm the network effects. This process, the later stages of which can be observed in the developed world today, can also plausibly explain the numerous abandonments of major urban centers in the archaeological record.
Book Reviews
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Leonidas Zelmanovitz – The Representational Theory of Capital: Property Rights and the Reification of Capital
Independent Review, 26(2).
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Noel Johnson & Mark Koyama – Persecution and Toleration: The Long Road to Religious Freedom
Liberal Currents, 2019.
The most important thing a student can gain from an economics class is the ability to think like an economist: to be able to look at some event in the world and know how to interpret it using economic theory. More than familiarity with a few (or even a great many) models, it requires a strong economic intuition for knowing which model to apply to a given situation and why it’s appropriate. . . .Continue Reading ►
Classes Taught
- Contemporary Economic Issues
- Principles of Macroeconomics
- International Money & Finance
- Money & Banking
- Intermediate Macroeconomics
Pick.al is a lightweight app I made for selecting students at random in class and recording participation points. Register at Pick.al ►
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