Join us for this event at which Patrick Bolton and Haizhou Huang will discuss their new book Money Capital: New Monetary Principles for a More Prosperous Society. The founding ideas of this book are that fiat money is the equity capital of a nation, and inflation costs for a nation are akin to dilution costs for shareholders. The authors ask two key questions: How does money enter the economy, and what does it buy? The book outlines a framework that integrates the real and monetary sides of the economy, with a banking sector and debt at its core. 

A first monetary policy principle pits inflation costs against default and debt-overhang costs. When a nation prints money to finance positive net present value investments it increases output not inflation, as evidenced by the strong growth in GDP and money in China over the last four decades, and in the US during WWII. A second monetary principle is on the central bank’s role as rescuer of last resort (ROLR): in a systemic financial crisis the optimal policy rule is to provide unrestricted support via equity intervention (contrary to Bagehot’s prescription of lender of last resort (LOLR) via debt intervention) to keep the economy going, and to resolve the debt overhang problem through equity dilution rather than costly debt restructuring. A third principle is that money is sovereignty: it gives the nation an option to print money in times of exigency. A monetary union trades off greater monetary discipline against a greater ability to manage financial crises. These principles and others developed in this book provide a novel perspective on monetary and fiscal policy, central banking, money and growth, and the international monetary system.