Add Meir Kohn’s works to your reading list

I don’t remember which blog/article pointed to a paper by Meir Kohn. He is an eco professor at Dartmouth who has done tonnes of work on financial history to understand whether it helps in economic growth.

What is amazing is his phd was in Operations Research. He took up economic/financial history as he was intrigued by monetary economics and high inflation in Israel.

He explains in this article:

Because of the severe inflation Israel was undergoing at the time, I became interested in monetary theory and macroeconomics. My dissatisfaction with the existing ways of modeling money led me to work on an alternative theory. Together with others, I helped to develop what came to be known as the cash-in-advance approach to money.

What is this cash-in-advance theory? About.com explains ( Kohn’s paper here):

The cash-in-advance constraint is a modeling idea. In a basic Arrow-Debreu general equilibrium there is no need for money because exchanges are automatic, through a Walrasian auctioneer. To study monetary phenomena, a class of models was made in which money was required to make purchases of other goods. In such a model the budget constraint is written so that the agent must have enough cash on hand to make any consumption purchase. Using this mechanism money can have a positive price in equilibrium and monetary effects can be seen in such models. 

Hmm. Well what Kohn says next is what I found more interesting:

Although the cash-in-advance approach was an improvement over the existing ways of modeling money, I had by the early 1990s come to the conclusion that mathematical modeling was of very limited value in advancing our understanding of the economy. At the time I was writing textbooks on Money and Banking and on Financial Institutions. Reading some financial history, I found it much more illuminating than the mathematical models to which I, and many others, had devoted so much effort. I therefore decided to redirect my efforts in that direction.

My initial goal was to achieve a better theoretical understanding of the workings and function of financial systems through a study of financial history. However, the most important and interesting question about financial systems is what difference they make to overall economic progress. So I was drawn into a more general study of the process of economic development and growth.

He has since then spent nearly a decade on 2 projects. One on pre-industrial Europe Financial System and its impact on growth. He is testing out his lessons on Chinese financial system and growth. The reports are available online.

• The Origins of Western Economic Success: Commerce, Finance, and Government in Preindustrial Europe
• How and Why Economies Develop and Grow: Lessons from Preindustrial Europe and China

Both look excellent stuff . I was reading the paper on deposit banking in 1600s and is quite fascinating.

There are also 2 papers which look like must read:

• A brief review of the literature on economic development and growth
• Why conventional economic theory is of limited help in understanding economic development and growth

Add Kohn to your reading list. Those interested in Economic/Financial history that is…