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Home for:  A New Macroeconomics to Explain Wealth Inequality updated March 2, 2023. Ralph Hiesey.

The purpose of this site is to explain an important monetary economic constraint that has been somehow been ignored and missing from Samuelson macroeconomics.  This implies a new modified macro that is different, yet not inconsistent with traditional Samuelson macro. Its benefit is that it explains empirically  well known additional properties that Samuelson approach does not easily explain, but at the same time it does not conflict with Samuelson macro.  

The unrecognized monetary property to be explained here is called:  “The fundamental Monetary Constraint on an economy with a fixed quantity money supply.”  Here are some economic properties not easily explained by Samuelson assumptions :

1. Explains how the fundamental money constraint can easily cause weak aggregate demand that causes traditional historical recessions/depressions despite no obvious  obstruction to production of  goods/services.  One example: the depression in the 1930’s did not lack in goods to sell–but GDP and employment and aggregate demand nevertheless all puzzlingly and suddenly went into decline for years.
2. How wealth inequality can develop so easily when all goods/services are exchanged using money.  Present macro doesn’t make this tendency obvious. Income differences are usually thought to occur only because some people are are lazier or more incompetent than others.
3. Makes obvious the serious problem that happens to goods/services distribution when some economic agents produce much more than they consume.  Examples: Walmart. Amazon.
4. Why government deficits are usually necessary for an economy that well distributes goods/services among agents. This is why nominal public debt has always gone up since 1950 (except for a very short period in 2000).  Many assume that government deficits and debt are caused by only by irresponsible excess spending.  Others may assume deficit spending may be necessary but only to combat recessions.  However the fundamental money constraint shows why deficits are usually necessary for a satisfactory economic distribution of goods, but it also explains why deficit values beyond an optimal value will become harmful.
5. Why economies have no choice but to “grow” to stay at a good constant level.  Most people now who discuss this assume that the reason is just because people really want and need more things to buy.

For those who are interested here’s how I developed this approach, and also some of my background. My purpose and background. 

My purpose in establishing this web site is to present a somewhat different way (not radically different!) to describe macroeconomics, which originally began as my effort in the 1950’s to understand the cause of the 1930’s depression.  Another unexpected result was to explain why wealth inequality is a common tendency of modern economies.  I explain how wealth inequality can start by being given a gentle shove by “The fundamental monetary constraint.” This constraint has existed since the invention of money,  but has for some reason has been ignored.  Some even regarded as  the view presented here as heterodox, possibly because it wasn’t obvious why such a simple concept as money needed any analysis because money itself seemed so obvious, simple and unnecessary to question. 

Here is a list of eight properties of our economy that this new macro explains, and six ways that it differs from present macroeconomics. List of differences  

I have also recently added an important interview with Princeton economist Atif Mian, accessible at the bottom of this web page, for which I have taken the liberty of adding commentary with an explanation for how I believe my macroeconomics explains an important source of credit.  He has commented importantly about the problems of high debt in our economy.

What is available on this site:

The main essay: A New Macroeconomics to Explain Wealth Inequality.  The following references the main 60 page essay that  describes a new approach macroeconomics that is based on an important, overlooked property of a basic money system.  New macroeconomics to explain wealth inequality-60 pages.  As an easier way to become familiar with it I suggest reading a much shorter condensed introduction that particularly concentrates on the long ignored “Fundamental monetary constraint” which forms the important basis for the longer main essay on macroeconomics. The shorter introduction is here:  Five page Introduction to Main Macroeconomics Essay.   

Because it is such an important foundation for this version of macro I have also written another short essay in slightly different style that describes the “Fundamental monetary constraint“.  Second short essay on Monetary Constraint.

A later, updated essay, November 2022, on “Fundamental monetary constraint”

Warning: These essays reflect a view that has been occasionally historically expressed, heterodox view of money that has been resisted by most orthodox economists, but which I believe explains too many other important economic facts to make it possible to ignore.  Because this view has been so commonly rejected, an argument has been carefully constructed in favor of it, both in the Five page introduction to Main Macroeconomics Essay above, and in the Second short essay referenced above. I’ve concentrated effort on very carefully describing the monetary constraint because for some reason its importance has been so long ignored, and even denied among the orthodox. 

Two additional essays: The first on Monetary Velocity is an economic concept about which many people have only vague understanding about its significance and purpose.  The essay explains precisely what activity in the economy causes this number to be what it is.  It explains why economic subgroups also have definable monetary velocities, which affect GDP for the entire economy. This macroeconomics uses “monetary velocity” for the same purpose for which economists often use “MPC” (marginal propensity to consume) to explain.  Wealthier groups are assumed to have low monetary velocities, and therefore are less efficient at producing GDP per dollar they hold. It also shows how subgroups in an economy who hold money at low velocity cause an entire economy’s velocity down, which also reduces overall GDP.  Monetary velocity explained-2 pages

The second essay: Debunking the claim of sudden future death of Social Security:   explains an extremely common misunderstanding about how Social Security works. The government does not hold  money in storage to be paid to future retirees.  All money paid out this month uses tax money that is collected during the present. Some think this must mean the government is being careless with their retirement money. However, the essay  explains why economists wisely set it up this way. Merely putting paper money now in an account, or “lockbox” to be opened in the future will not serve that purpose.  Social Security Misunderstandings explained-3 pages

Important Interview of Princeton economist Atif Mian for which I have added a commentary. As will be obvious from my commentary, I have great respect for Mr. Mian’s approach, which is very closely tied to what he has observed in the economy.  One reason for putting this up is in hopes that  Mr. Mian reads and criticizes my essays describing the Monetary constraint–for which I would be very appreciative for any criticism or suggestion. The interview referenced below was conducted by Heather Boushey on the Washington Center for Equitable Growth.  Both Mian and I have similar reasons for thinking that high private debt is harmful to an economy.  I recopied the entire interview, then added my comments for this site.  In my opinion the new macroeconomics I have described on this site is a more compatible economic environment for his ideas about debt than present Samuelson macroeconomics.   Here is the entire interview, with my additional commentary:   Atif Mian Interview with added commentary                                                                                    The original unmodified interview is here: Original unmodified Interview with Atif Mian.

I strongly invite comments from readers. At the bottom left of this page you can send emails to improve or criticize content or clarity. If I modify the essay based on your suggestions I’ll credit them to you, unless you request that you wish to remain anonymous.

This analysis outlined in the main essay helped me to understand economics much better than I previously did. I hope this will also be your experience.  I also believe it has highlighted some obvious weaknesses, but not ones for which I have yet proposed a better alternative.  Successful improvements are most likely to occur after a clear understanding has developed for how it presently works–along with present problems.  Also available in the left column of this page are a few books that have been important to me, and some web sites I have found interesting or informative. I anticipating expanding the number of items soon. 

Ralph Hiesey
Boulder Creek, CA.