Join us for this lecture 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.
Meet our speakers and chair
Patrick Bolton is a professor of finance at Imperial College London and senior advisor to the Lazard Climate Center. He is past president of the American Finance Association and a fellow of the Econometric Society. During four decades in the discipline of economics, he has made seminal contributions in areas such as Contract Theory, Corporate Finance, Corporate Governance, Banking, and Sustainable Investing. His recent work addresses how financial systems and institutions will have to adapt in the face of climate change. He has published numerous books, including recently Contract Theory and The Green Swan: Central Banking and Financial Stability in the Age of Climate Change.
Haizhou Huang is Special-Term Professor of Finance at PBC School of Finance at Tsinghua University and Shanghai Advanced Institute of Finance at Shanghai Jiaotong University, and has started to serve as an external member of the Monetary Policy Committee of the People’s Bank of China since March 2024. He is a former senior economist at the International Monetary Fund (IMF) and Chief Economist of Greater China at Barclays Capital and has held senior management roles at China International Capital Corporation (CICC), including Managing Director and Chairman of Capital Markets Committee. Together with Patrick Bolton, he won the Pagano-Zechner Best Paper Prize by the European Financial Association in 2018 and the 19th Sun Ye-Fang Prize in Economics, the highest prize in economics in China, in 2021.
Charles Goodhart, CBE, FBA was the Norman Sosnow Professor of Banking and Finance at the London School of Economics and Political Science until 2002; he is now an emeritus professor in the Financial Markets Group at the School. Before joining LSE in 1985, he worked at the Bank of England for seventeen years as a monetary adviser, becoming a chief adviser in 1980. During 1986, Goodhart helped to found, with Mervyn King, the Financial Markets Group at LSE, which began its operation at the start of 1987. In 1997, he was appointed one of the outside independent members of the Bank of England’s new Monetary Policy Committee until May 2000.
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The Financial Markets Group (@FMG_LSE) is a leading centre for research into financial markets. Research at the FMG examines how stable and efficient the financial system is, how it supports the real economy, and what policy measures can generate improvements in these dimensions.
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