Horizontalism is an approach to money creation theory pioneered by Basil Moore which states Horizontalists and Verticalists: The Macroeconomics of Credit Money, Cambridge University Press. ISBN ; Palley, Thomas ( ). PDF | In Basil Moore published his book Horizontalists and Verticalists: The Macroeconomics of Credit Money, which this year celebrates. The latest issue of the Review of Keynesian Economics includes a special mini- symposium honouring the 25th anniversary of Basil Moore’s.

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More Contact us Publish with us Subscribe. Scrutinizing the Fed’s operating procedures of previous decades, Moorep. In a similar vein, the instrument-choice problem stressed in the influential model by Poole discussed the pros and cons of using the interest rate or the money supply to stabilize macroeconomic fluctuations. But we believe that this will take until mainstream and in particular textbook economics has freed itself completely from the assumption of an exogenous and controllable money stock that Vertkcalists identified to be so mistaken.

The Macroeconomics of Credit Moneywhich this year celebrates its 25th birthday. Such fundamental theoretical misspecification renders all accompanying empirical parameter estimates highly suspect. Monetary policy decision making almost everywhere means a decision about the operating target for an overnight interest rate, and the increased transparency about policy in recent years has almost meant greater explicitness about the central bank’s interest-rate target and about hirizontalists way in which its interest-rate decisions are made….

The heritage left by his book, the intellectual deepness of his thoughts, and the clarity with which his ideas were put forward have, in our view, made Horizontalists and Verticalists a key contribution to monetary economics.

The recent writings of, for example, Godley verticapists Lavoie confirm this point of view. Moore was aware of the consequences of removing this central assumption and instead adopting the horizontal view. In our opinion, these criticisms were at the core of Moore’s reasoning. This curious disjunction between theory and practice predates the enthusiasm of the s for monetary targets.

The verticalist paradigm may apply in a world of commodity or pure fiat horizohtalists. Robert Lucas had issued his critique on econometric policy evaluation 12 years earlier and thereby triggered the avalanche of micro-based macroeconomics that still prevails today. Given the central bank’s control over the money rate, there is no natural convergence process of the actual money rate to the real rate.


It is remarkable that a book that must have appeared rather provocative when it was published has been corroborated so unambiguously by actual developments in policymaking horizontalixts such a short period of time.

The yearin which Moore wrote, was, however, not ripe for his view. A student of neoclassical Austrian Fritz Machlup, Basil Moore became interested in money and banking very early in his career. Horizontalism is an approach to money creation theory pioneered by Basil Moore which states that private bank reserves are not managed by central banks. Under lagged reserve accounting, both the Fed and the banks now know the level of evrticalists reserves before the start of the reserve maintenance period.

Yet, in light of the strong vindication of Moore’s book and the recent progress of mainstream economics to formulate monetary policy in terms of interest rates, we believe that the textbook view of controllable money supply will also be buried some day and thus the mainstream academic profession must, hopefully, eventually recognize the merits and power of the horizontalist view.


These worries were largely confirmed by the verticalksts that led to the financial crisis of — and the need for central banks to massively intervene to substitute for the drying-out of short-term capital market funding sources. Search Google Scholar Export Citation.

The foundations for modern New Keynesian monetary models had been laid by Calvo verticalits Blanchard and Kyotaki IrwinHomewood, IL For example, the indeterminacy debate, triggered by Sargent and Wallace’s unpleasant monetarist arithmetic — whose repercussions run through virtually all current monetary models — essentially focused on the question of whether or not the price level could be determined by means of the interest rate or whether it could only be determined by setting the money stock.

It is even more remarkable that he warns already in against the increasing liquidity and financial stability risk relating to the issuance of short-term debt instruments by banks. Instead reserves will be provided on demand at the bank rate set by the central bank.


Basil J. Moore’s Horizontalists and Verticalists: an appraisal 25 years later

It is remarkable that the Fed never tried to openly justify borrowed reserves targeting as a coherent method. In Basil Moore published his book Horizontalists and Verticalists: Views Read Edit View history.

With respect to monetary issues, they firmly rested on the possibility that central banks can exert direct control over the monetary base. Moore’s ideas may have shaped the course of post-Keynesian economics. We discuss this book from today’s perspective, and in particular whether Moore’s main assertions have been validated or rejected by the development of central bank practice and academic monetary economics.

This page was last edited on 15 Juneat Nonetheless, theoretical analyses of monetary policy have until recently almost invariably characterised policy in terms of a path for the money supply, and discussions of policy rules in the theoretical literature have mainly considered money-growth rules of one type or another.

This book has stood the test of time and is still a must-read for anyone interested in understanding the functioning of the monetary system and the relationship between the banking and financial sector and the central bank.

Horizontalism – Wikipedia

As a last side remark, Moore associates the representation of the central bank and the banking system in T-accounts with monetary base targeting and the money multiplier doctrine, and therefore rejects its usefulness.

What may explain why Moore could formulate his critique of the US Federal Reserve and academic monetary doctrine so early was his strong interest in banking and finance matters. Retrieved from ” https: Horizontalism influenced monetary circuit theorists to develop the endogenous money approach that was already nascent within Post-Keynesian academic thought.

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