Money, Banks and Finance in Economic Thought

Hamlet without the Prince? How Spatial Economics Abandoned Monetary Analysis

Bieri David, Virginia Tech

From the local income effects of mortgage refinancing to the regional transmission of monetary policy via house price dynamics, the Great Financial Crisis has been a powerful reminder that money and credit--always and everywhere--matter greatly for the evolution of the space-economy. Yet, with the classical dichotomy still embedded firmly in its theoretical core, the contemporary canon of spatial economics (from urban economics to geographical economics and regional science) has little to say about monetary phenomena and their spatial consequences. Such a disengagement with regional aspects of money and credit represents a distinct break with the intellectual tradition of a long ancestry of spatial economists, stretching as far back as the seminal writings of Heinrich von Thünen's. In this paper, I illustrate this contention by examining the monetary content of the work of August Lösch (1906–1945)--one of the founding fathers of modern spatial economics. Indeed, questions about the spatial neutrality of money, its institutional governance, as well as its endogenous creation, are central elements to his work. In this sense, I argue that Lösch--as a student of Walter Eucken's, Arthur Spiethoff's and Joseph Schumpeter's--represents an important branch in the long lineage of 20th century Continental monetary thought. Yet such a pedigree notwithstanding, the current orthodoxy of spatial economics has now almost completely abandoned these very aspects of the Löschian system. I further argue that Lösch's theoretical reflections on spatial aspects of money also reflect primary elements of a 'credit view' which was slowly establishing itself in the waning years of the Weimar Republic. Indeed, Lösch's treatment of money also forms a central pillar of his ambition to develop a 'theory of the business cycle in space' where the main focus is not on the location choice per se, but on the effects of the reciprocal links between trade flows and financial flows on endogenously determined economic regions. In these aspects, Lösch relies mainly on Gottfried Haberler's synthesis of international business cycle theory of the late 1930s, but also draws from Hans Neisser's work on money and credit, particularly with regard to the impact of monetary policy on the business cycle. On these grounds alone, the lack of recognition of Lösch's contributions to a spatially-oriented theory of money, let alone his (albeit rudimentary) attempt to link real and monetary elements in a synthesis of the theory of space with the credit theory--quite consistent with 'Ohlin’s dream'--represents a historical curiosity, if not a puzzle. Spatial economics without Lösch's monetary theory, then, appears indeed akin to Hamlet without the prince.

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Keywords: Spatial economics, monetary analysis, Lösch, Isard, non-neutrality of money

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