Money, Banks and Finance in Economic Thought

Jacob Marschak and the Cowles Approaches to the Theory of Money and Assets

Hagemann Harald, Universitaet Hohenheim
Robert W. Dimand, Brock University, St. Catharines, Ontario L2S 3A1, Canada

Robert W. Dimand and Harald Hagemann Dimand: Department of Economics, Brock University, 1812 Sir Isaac Brock Way, St. Catharines, Ontario L2S 3A1, Canada; e-mail: Hagemann (corresponding author): Universität Hohenheim, 70593 Stuttgart, Germany; e-mail: JEL classifications: B22 History of Economic Thought since 1925: Macroeconomics; B31 History of Economic Thought: Individuals, E Macroeconomics and Monetary Economics Abstract: Jacob Marschak shaped the emergence of monetary theory and portfolio choice at the Cowles Commission (which he directed from 1943 to 1948, but with which he was involved already from 1937) at the University of Chicago, where he was the doctoral teacher of Harry Markowitz and Don Patinkin, and then from 1955 at the Cowles Foundation at Yale University, where he was a senior colleague of James Tobin until moving to UCLA in 1960. Marschak’s later attempts to clarify the concept of liquidity and to emphasize the role of new information for economic behavior date back as far as to his early experiences with hyperinflationary processes in the Northern Caucasus during the Russian Revolution. Marschak came to monetary theory with his 1922 Heidelberg doctoral dissertation on the quantity theory equation of exchange (published in 1924 as “Die Verkehrsgleichung”), and embedded monetary theory in a wider theory of asset market equilibrium in studies of “Money and the Theory of Assets” (1938), “Assets, Prices, and Monetary Theory” (with Helen Makower, 1938), “ Role of Liquidity under Complete and Incomplete Information” (1949), “The Rationale of the Demand for Money and of ‘Money Illusion’” (1950), and “Monnaie et liquidité dans les modèles macroéconomiques et microéconomiques” (1955), as well as in Income, Employment and the Price Level (lectures Marschak gave at Chicago, edited by Fand and Markowitz, 1951). Using both Marschak’s publications and unpublished archival material, we examine Marschak’s analysis of money within a broader theory of asset market equilibrium and explore the relation of his work to the monetary and portfolio theories of his doctoral students Markowitz and Patinkin and his colleague Tobin and to the revival of the quantity theory of money by Milton Friedman, a University of Chicago colleague unsympathetic to the methodology of the Cowles Commission.


Keywords: Jacob Marschak,money in a theory of assets, Cowles Commission, Harry Markowitz, James Tobin

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