Duke Chronicle #5

Finally I am here. A renaissance campus, friendly neighbors, a warm reception. This is Duke. I arrived at Durham on Saturday evening, by one of the latest flights. RDU airport was almost empty. Lisa, a dear friend of mine, picked me up from the airport and transported me to my temporary residence, Victoria’s home. I spent Sunday exploring the town, looking for a European-style bakery and… Duke Chapel, of course. Fascinating. The building itself was open, so I felt free to enter and take some pictures. Here they are.

Yesterday was my first day at Rubenstein Library. A visiting scholar has to check-in at Duke Visa Services first, so it was the first thing on my schedule for Monday. Then I dropped in on Angela at Duke HOPE for a short visit and to give her those little things I brought from Hungary as a present. Then I crossed the park to the Library.

Unfortunately, my work at Rubenstein Library is rather purely of physical nature for the time being. I am standing by my desk over the tons of drafts and manuscripts or personal and professional letters and taking pictures of them. Eight hour a day. By the end of my shift I feel utterly exhausted, spent and worn-out. There is no chance of visiting the downtown of Durham on such days. But at the weekend… I will make up for the lost time.

On this second day of mine I could entirely process Box 19 of the Lucas Papers written on the famous paper “After Keynesian Macroeconomics” co-authored by Tom Sargent. It is clear that this paper has a seminal role in Lucas’ career. He devoted so many drafts to the preparation process that the manuscripts take up three boxes. It took me hours to go over the papers only superficially – but all well that ends well. In the end all the important drafts are copied.

Duke Chronicle #4

The final countdown has started. There are only eight days left before my leaving for Durham. I have finished off the final touches, so the preparation is over now. It was interesting, I can say. There were a lot of things to do. First, I had to look into the online catalogue for the Lucas fragments at Rubenstein Library in order to pick the boxes I want to use during my stay. I have two weeks that means 10 whole workdays, so I must be effective. I set up a spreadsheet in which I could precisely indicate and look through which boxes seem to be highly important in advance and which are only of secondary importance. Boxes are not stored on-campus, so the staff need two business days for delivering the boxes required by a researcher. I can say that everybody at Rubenstein Library is amiable and helpful, this is the reason why the preparation process was a source of joy rather than anxiety or stress. Admittedly, from time to time I catch myself in the act of Googling for the reading room of Rubenstein Library. Gorgeous. My workplace appears to be unbelievably beautiful.

Second, I had to buy a US plug travel adapter, plus a second rechargeable battery to my digital camera, which is expected to be overused during this fortnight, and to find out what special Hungarian things I should take to my Duke people as a present. I have picked paprika from Kalocsa and marzipan from the Szamos manufacture. They are excellent choices I think. I wrote to a friend of mine living in Alaska and pursuing a career as a researcher to ask her about the manners. She suggested I offer to cook a traditional Hungarian meal for my landlady and her family. Or rather landladies, yes. There occurred some minor changes. Lisa will still be picking me up from RDU (Raleigh-Durham Airport) and driving me to Paige’s home. Paige and her daughter Celeste and her dog Ruby are new protagonists in my story. According to the original screenplay, Lisa will be putting me up for my stay, but life has rewritten the story. For a couple of days, she had to find a new home for me and it was Paige who offered hospitality to me. I am happy for this change. I can make more friends, so I am sure it will be the adventure of my life.

The final countdown has just started. In ten days I start my work at Rubenstein Library. Until then and until I can set my eyes on the streets of Durham there is an arduous and enduring travel to survive. I decided to take the train to Budapest. My plane is supposed to take off at noon, so I must get up early in the morning… and then set off. The adventure of my life is eager for me to arrive.


Some Thoughts on the Veil of Money

Veil of money and, as a related issue, the quantity theory of money have special importance in economic high theory throughout the 20th century. Actually, 20th century economics can be interpreted as a sequence of theoretical answers to the question whether money is only a veil or not. Different theories can be judged by their implied ideas as to the neutrality of money. In the simplest models and in the simplest form of the quantity theory of money, money is completely neutral, that is, changes in the money supply do not affect anything real. However, in the more elaborated models the neutrality theorem was applied rather to long-run considerations. For both Milton Friedman and Robert E. Lucas money was not a mere veil in the short run, so money was assumed to have real effects in the short run. The mechanisms through which money could exert these real effects were radically different and so were the sets of assumptions these authors created to establish their models. For example, Friedman postulated adaptive expectations, while Lucas assumed his economic agents to be able to form rational expectations. For both of them, money was only neutral in the long-run, that is, money was not only a veil in the short-run, but the scope of countercyclical economic policy was radically curtailed in new classical macroeconomics. In the case of rational expectations the monetary authority is not able to carry out systematic countercyclical economic policy, that is, it cannot exploit the existing short-run Phillips curve. However, it can be realized that if any of the conditions necessary to the ineffectiveness of systematic economic policy is not met, economic policy can be effective again, so, money is not only a veil.


On Money Illusion

Money illusion is believed to be instrumental in the Friedmanian version of the Phillips curve. Actually money illusion is not enough to explain the mechanism underlying this Phillips curve. It requires two additional assumptions.

First, prices respond differently to modified demand conditions: an increased aggregate demand exerts its influence on commodity prices sooner than it does on labour market prices. Therefore the drop in unemployment is, after all, the result of decreasing real wages and an accurate judgement of the situation by employees is the only reason for the return to an initial (natural) rate of unemployment (i.e. the end of the money illusion, when they finally recognize the actual dynamics of prices and wages).

The other (arbitrary) assumption refers to a special informational asymmetry: whatever employees are unaware of in connection with the changes in (real and nominal) wages and prices can be clearly observed by employers. The new classical version of the Phillips curve was aimed at removing the puzzling additional presumptions, but its mechanism still requires money illusion.