http://www.amazon.com/Time-Money-Macroeconomics-Capital-Structure/dp/0415771226

i.e. Money = Time.

Von Raivo Pommer

Der US-Investor Donald Trump hat die die Deutsche Bank und andere Institute wegen eines Wolkenkratzerprojekts verklagt. Er fordert drei Milliarden Dollar Schadenersatz, weil die Banken seiner Ansicht nach Vereinbarungen zur Finanzierung seines “Trump Tower“ in Chicago gebrochen hätten.

“Wir haben Klage eingereicht. Darin beschreiben wir das schlechte Benehmen der Deutschen Bank im Bezug auf den Trump Tower in Chicago. Wir sind sicher, dass sich das Gericht unsere Position unterstützen wird”, sagte Trumps Anwalt Steven Schlesinger am Montag. Ein Deutsche Bank-Sprecher wollte sich zunächst nicht zu der Klage

Das Wall Street Journal hatte am Freitag berichtet, Trump habe trotz der weltweiten Finanzkrise und austrocknender Kreditmärkte eine Verlängerung seiner Kredite für den Bau erwirken wollen.

Zu den Gebern des 640 Millionen Dollar schweren Kredits zählt dem Blatt zufolge neben der Deutschen Bank unter anderen eine Tochter von Merrill Lynch.

Oh go on, please. I have a superficial understanding of gauge invariance as it applies to the original electro-magnetics and an even more tenuous grasp on its application to the maths of QED, QCD and Yang-Mills theory.

What on Earth do you mean by the term in the realm of economics?

New Keynesians claim to incorporate this insight into their models. I don’t think they really do, but they are not unaware of it.

“Pigeon-holing aside, Lucas’s model is not one of ‘money illusion’ as agents rationally use all information available to them.”
Yes.

“Keynes’ theory saw individuals using information irrationally: they resisted downwards nominal wage changes that left their real income unchanged because they inherently misunderstood the distinction between real and nominal income.”
Possibly. Give me a cite.

“This misunderstanding of the economic system is distinct from misperceiving or being misinformed about economic realities and has been all but left behind by modern theorists.”
That’s a difficult question, I agree.

The problem is really one of those “What is rationality?” problems. If a person knew all the details they would surely see what their real income is compared to their nominal income. None of us see all those details though, so we have to rely on our previously acquired knowledge. We can’t call rationality the knowledge of some god, we can’t make it what Hayek called “French rationality”. What it must mean to be useful is what people can learn, what Hayek called “Scottish rationality”.

Not knowing the relationship between your real income and your nominal income is a matter for an individual. It is that individual misunderstanding of their own situation.

None of this means that people necessarily resist downward changes in wages because any misunderstanding. The more plausible reason is that they resist it because they can.

Pigeon-holing aside, Lucas’s model is not one of ‘money illusion’ as agents rationally use all information available to them.

Keynes’ theory saw individuals using information irrationally: they resisted downwards nominal wage changes that left their real income unchanged because they inherently misunderstood the distinction between real and nominal income.

This misunderstanding of the economic system is distinct from misperceiving or being misinformed about economic realities and has been all but left behind by modern theorists.

Tim adds: Eh? I thought the downwards stickiness of nominal wages was simplyaccepted by everyone now?

That said I do find it sad that many free marketeers leave behind the nuances of Hayek, as many of them do.

Keynesian Economics is taught in the sense of Hick’s IS/LM model or the New-Keynesian models of Taylor, Mankiw etc.

However, it should always be recognised that New-Keynesians abandoned many of the nuances of Keynes’ theory (animal spirits, the principle of money illusion etc) in the same way that free marketeers abandoned the nuances of the works of Smith and Hayek.