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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Horizontalists and Verticalists: 25 years later

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. It is remarkable that a book that must have appeared rather provocative when it was published has been corroborated so unambiguously by actual developments in policymaking within such a short horizontalsits of time.

But, as Moore argued init does not provide a correct description of a credit economy. 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.

Monetary policy decision making almost everywhere means a decision about the operating target for an overnight interest rate, and the increased transparency about policy in recent years has almost meant greater explicitness about the central bank’s interest-rate target and about the way in which its interest-rate decisions are made…. 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.

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.

Moore BasilHorizontalists and Verticalists: The supply of credit money is endogenous, is demand-determined, and only its price can be controlled by the central bank, not its quantity. Since the control of interest 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 online content platform for Edward Elgar Publishing.

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Because, if anything, the last 25 years have vindicated the substance of his thinking in a surprising way that could hardly have been anticipated in This inverts the mainstream textbook money multiplier relationship between deposits and loans since loans are said to cause deposits which in turn cause reserves. The Wicksellian theory of the natural rate of interest has regained popularity and we believe that this theory is fundamentally correct, even if there is a danger of misinterpreting it.

For the social relationship of Horizontalism, see Horizontalidad. One of us UB has to acknowledge that he himself largely overlooked Moore, in Bindseil a and b. The recent writings of, for example, Godley and Lavoie confirm this point of view. And, surprisingly, it’s all contained in Basil Moore’s book. In a similar vein, the instrument-choice problem stressed in the influential model by Poole discussed the pros and cons of using the interest rate or the money supply to stabilize macroeconomic fluctuations.

One of the reasons why Moore may have devoted relatively little attention to the nineteenth century is his correct remark that commodity money is not the same as credit money, and that David Hume’s quantity theory was indeed appropriate as a theory for a commodity standard.


The movement of rational expectations economics was already in full swing. A student of neoclassical Austrian Fritz Machlup, Basil Moore became interested in money and banking very early in his career.

This was Moore’s message in and it was a brave one. By using this site, you agree to the Terms of Use and Privacy Policy. You can help Wikipedia by expanding it. He did not shy away from explicitly spelling this out: Although we have to admit that neither of us is much acquainted with the post-Keynesian literature, we believe that the Festschrift edited by Setterfield is evidence enough of Moore’s influence in this field of economics.

In our opinion, these criticisms were at the core of Moore’s reasoning. And even though the textbook and academic mainstream view on the money supply still largely maintains that the central bank can control it, the real-world developments in monetary policy practice have paved the way for an understanding of monetary policy as interest rate policies that must necessarily sooner or later result in the horizontalist view of Moore.


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

The yearin which Moore wrote, was, however, not ripe for his view. No one appears responsible. His thesis dealt with the effects of monetary policy on bank earnings.

For us, the only plausible explanation may be that Moore’s message is formulated so vigorously that it still appears overly provoking to many. However, this should, in our view, not preclude one from learning from nineteenth-century monetary policy implementation techniques. But we believe that this will take until mainstream horizontalistd 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.

The verticalist paradigm may apply in a world of commodity or pure fiat money.

Show Summary Details Basil J. This economics -related article is a stub.

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

Search Google Scholar Export Citation. For example, the indeterminacy debate, triggered by Sargent and Wallace’s unpleasant monetarist arithmetic — whose repercussions run through virtually all current monetary models — essentially focused on the question of whether or not the price level could be determined by means of the interest rate or whether it could only be determined by setting the money stock.

But Moore’s goal gradually comes closer. Moore’s ideas may have shaped the course of post-Keynesian economics. Retrieved from ” https: Given the central bank’s control over the money rate, there is no natural convergence process of the actual money rate to the real rate.