Monetary Economics: An Integrated Approachto Credit, Money, Income, Production andWealth, by Wynne Godley and Marc Lavoie(Palgrave Macmillan, New York, 2007), pp.576.

Despite the promise of its bland title, Mone-tary Economics does not offer the portfolio oftopics usually found under the heading of ‘mon-etary economics’. Rather, it supplies the readeran extensive development of a ‘hydraulic’ Key-nesian macro model1 by means of incorporatinginto it an elaborate financial sector.

The pre-eminent intellectual inspiration in thisexercise is James Tobin; he is quoted more thanKeynes, or, indeed, than any other economist.However, this Tobin is not Tobin of Tobin (1960)that playfully scoffs at what would becomeknown as a post-Keynesian theory of incomedistribution. Rather, it is the Tobin of Brainardand Tobin (1968) where Tobin plays Walras, andGeneral Equilibrium, against Friedman andMarshallian partial equilibrium. Monetary Eco-nomics may, in fact, be considered as an attemptto complete Tobin’s project of articulating a Gen-eral Financial Equilibrium, through the allow-ance for dynamics and the endogenisation ofincome flows through hydraulic Keynesianism.

There is some irony in these post-Keynesianauthors drawing their system from a stem ofWalras. And yet there is unquestionably a largedistance between what they do and what Walrasdid. Walras’ economy might be said to be popu-lated by N species of the same genus. However,in Godley and Lavoie’s economic ecology radi-cally distinct genera flourish:

HouseholdsFirmsBanksCentral BanksGovernment

Such a taxonomy may seem familiar, but theuse of it differs here from standard economicanalysis. In the standard analysis, ‘firms’ and‘households’ are merely pedagogically con-venient reifications of two distinct analyticalproblems: wealth maximisation and utilitymaximisation. Hence, ‘firms’ and ‘households’are not distinct agencies; they are a way of

representing two aspects of one. In an approachsuch as this, it is not clear whether ‘banks’should be additionally reified. For it is not quiteclear what problem banks are solving; the ques-tion ‘What do banks do?’ never yields a succinctanswer. Perhaps rightly banks have such fitfuland fugitive presence in neoclassical macromodels.

However, the authors have no interest in, andhold no hope for, explanation in terms of inte-gral, maximising behaviour. Instead, they workwith behavioural rules; targets for real wages;mark-ups on prices; normal rates of capacityutilisation. All these are treated as primitives, asthe neoclassical would preferences. And on theirfoundation they erect supply and demand struc-tures as programmatically as any Walrasianwould. They are content, for example, to applyclassic supply and demand analysis to equitiesin a way a neoclassical would hesitate tofollow.

There is one exception to this programmaticWalrasianism: the authors assiduously shun anynotion that the value of money is determined bythe equality of the supply and demand formoney. This notion is carefully parried byinvoking the Walrasian principle that if N ) 1markets clear then the Nth market must clear.Hence, by articulating the equilibrium of allmarkets but the money market, the need to artic-ulate equilibrium in the money market is dis-pensed with. A sympathiser might deem thisdialectical manoeuvre as no less legitimate thanJR Hicks disposing of the ‘loanable funds’ dis-course by casting the bond market as the resid-ual market of the IS-LM model. However, to acritic this dialectical manoeuvre may appear alogic-chopping evasion of the whole question ofhow monetary factors might (or might not)impact on real markets (a topic that launched1001 papers in the aftermath of Money, Interestand Prices by Patinkin, 1965). For while it istrue that in articulating a Walrasian equilibriumone is entitled to ‘drop’ the market for (say)chocolate, that hardly entitles one to concludethat news about chocolate causing cancer willhave no effect on the relative price of gumdrops. And dropping the market for chocolatewill only hinder the investigation of such a pos-sible effect.

The authors’ treatment of the money marketas ‘the residual market’ does father one fruitfulsuggestion. It suggests modelling money hold-ings as an inventory (nothing new there) but

1 That is the Keynesianism of ‘flows’, ‘leakages’and ‘injections’ (see Coddington, 1976).

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treating most of its movement as an unantici-pated accumulation of inventory. This brings tomind the modellings of anticipated and unantici-pated inventory accumulation that briefly flour-ished in the 1970s. Regrettably, the possibilityof applying that work to money demand is notpursued.

Overall, the book is testimony to the author’simplicit belief that a key mine of explanationwill be found in the comprehensive accountingof the interconnections between components ofthe economy. It is hard to contest the impor-tance of such interconnections. However, theconcomitant implicit demotion of microfounda-tions as a source of explanation is the key prin-ciple at issue, and one which the authors dolittle to vindicate.

WILLIAM COLEMAN

Australian National University

REFERENCES

Brainard, W.C. and Tobin, J. (1968), ‘Pitfalls inFinancial Model Building’, The American EconomicReview, 58, Papers and Proceedings of the EightiethAnnual Meeting of the American Economic Associa-tion, pp. 99–122.

Coddington, A. (1976), ‘Keynesian Economics: TheSearch for First Principles’, Journal of EconomicLiterature, 14, 1258–73.

Patinkin, D. (1965), Money, Interest, and Prices: AnIntegration of Monetary and Value Theory, 2ndedn. Harper & Row, New York.

Tobin, J. (1960), ‘Towards a General Kaldorian The-ory of Distribution Towards a General KaldorianTheory of Distribution’, The Review of EconomicStudies, 27, 119–20.

Development Economics Through the Decades:A Critical Look at 30 years of the WorldDevelopment Report, by Shahid Yusuf withAngus Deaton, Kemal Dervis, William Estear-ly, Takatoshi Ito and Joseph E. Stiglitz (TheWorld Bank, Washington, DC, 2009), pp. 188.

The book is a succinct, but thorough and bal-anced, examination of the 30 annual series ofthe World Development Report, which theWorld Bank (WB) has published continuouslysince 1978. The principal examiner is ShahidYusuf, who was the Director of the WDR1999 ⁄ 2000 edition and is an Economic Adviserin the Bank’s Development Economic Research

Group. Providing additional critique to the WDRare equally top-notch development scholars andpractitioners – Angus Deaton, Kemal Dervis,William Easterly, Takatoshi Ito and Joseph E.Stiglitz – whose professional careers span ser-vice in the academe, government and develop-ment institutions including the WB. The reviewof the WDR is opportune as the value added ofeach edition seems uneven and yet looks morecostly to produce than the last, as judged by theincrease in the number of pages, backgroundpapers commissioned and the size of the WDRteam involved. Considering the relative weightsof the contributors’ arguments and evidence,including inside stories and anecdotes from theBank, I am persuaded that the WDR failed toyield adequate economic returns. Much like ajuror who pronounces ‘Guilty’ with a clear con-science after hearing the skilful summation ofthe opposing counsels, my sentiment shouldbe taken as a credit to the book and to itscontributors.

Yusuf presents the case for sustaining andimproving the WDR. First, he discusses the birthand growth of the WDR in the context of evolv-ing discipline of development economics and apost-war world initially divided by two oppos-ing economic ideologies. As originally con-ceived and since evolved, the WDR is theBank’s vehicle for clarifying the relevant devel-opment issues, synthesising lessons and bestpractices from the field, pointing out policyoptions and their likely consequences, and advo-cating the alleviation of poverty before theinternational community. Then he cites theWDR’s contributions to the development litera-ture, such as the more than 6500 citations inpeer-reviewed journals and the World Develop-ment Indicators. Further, with the WDR theBank has pioneered a reporting format nowwidely imitated by other development institu-tions. In addition, a quick check of some of theleading textbooks in development economics(e.g. Ray, 1998; Perkins et al., 2006; Todaro &Smith, 2006) would support the claim that theWDR has permeated classroom discussions. Inmy teaching, I also used some of the conceptualdiagrams and case studies in the WDR 2004(Making Services Work for the Poor) and WDR2002 (Building Institutions for Market).

However, the WDR’s contributions to actualpolicy-making, especially in the WB membercountries, are not as well documented. The realcredit to the WDR could have been better

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