Michael Woodford's 2003 Interest and Prices has been regarded as the most important contribution to monetary economics since the publication of Don Patinkin's Money, Interest and Prices fifty years ago. Like Patinkin, Woodford sought inspiration in Knut Wicksell's 1898 Interest and Prices. But, while Patinkin built on Wicksell's incipient formulation of the real balance effect and stability analysis of the price level (see Boianovsky 1998), Woodford has elaborated on Wicksell's concept of a pure credit economy (called “cashless economy” in the 2003 version), a theme largely disregarded by Patinkin. This difference in perspective is in part related to the fact that Patinkin's concern was mainly monetary theory, whereas Woodford has focused on monetary policy instead. In early 2004 I invited a group of scholars to discuss Wood-ford's book from the point of view of the history of thought and methodology in a session at the History of Economics Society meetings, held in June of that year at Victoria University, Toronto. Michael Woodford was also invited to participate in the session and reply to the comments. The revised papers are published here as a mini-symposium.

Michael Woodford's Interest and Prices: Foundations of a Theory of Monetary Policy (2003) is an important book. Woodford's title is, of course, a conscious revival of Wicksell's own famous work and it points to an effort to recast the analysis of monetary policy as centered on interest rates. I believe that Woodford's theoretical orientation is essentially correct. In repairing to Wicksell, he places the monetary aggregates into a more reasonable perspective, correcting the distortions of the monetarist and Keynesian diversions with respect to money. My money is, so to speak, where my mouth is: My own textbook-in-progress is also based around an IS/interest-rate rule/AS model, in which financial markets cleared by price rather than the LM curve are emphasized. Such an approach, as Woodford notes, has become standard in central banks, but has not yet captured either core undergraduate or graduate textbooks and instruction. My task here, however, was not to praise Woodford's economics nor to trace or evaluate its Wicksellian routes, but to consider Interest and Prices from a methodological point of view.

There can be no doubt that the monetary systems of a number of advanced countries nowadays resemble Knut Wicksell's (1898) model of the “pure credit economy” much more closely than did any that actually existed in the world for which he wrote. Currency has long been losing its quantitative importance in mediating transactions among the general public in such countries, and more recently, the development of modern information technology has made it possible for them to operate the clearing and settlement systems that underpin the use of bank deposits as means of exchange with a close-to-zero stock of reserve assets.

Once one recognizes that many prices (and wages) are fairly sticky over short time intervals, the arbitrariness of the path of nominal prices (in the sense of their under-determination by real factors alone) implies that the path of real activity and the associated path of equilibrium real interest rates are equally arbitrary. It is equally possible, from a logical standpoint, to imagine allowing the central bank to determine, by arbitrary fiat, the path of aggregate real activity, or the path of real interest rates, as it is to imagine allowing it to determine the path of nominal interest rates. In practice, it is easiest for central banks to exert relatively direct control over overnight nominal interest rates, and so they generally formulate their short-run objectives (their operating target) in terms of the effect that they seek to bring about in this variable rather than in one of the others.

The New Neoclassical Synthesis that Michael Woodford puts forward in his Interest and Prices (2003) is primarily a synthesis of New Classical and New Keynesian ideas. Yet Woodford presents it as an encompassing approach that goes much further back in time to integrate the pre-Keynesian macroeconomics of Knut Wickseil and his followers. Starting with the title, the book contains many references to Geldzins und Güterpreise (1898), Wicksell's landmark contribution to monetary theory which was translated as Interest and Prices in 1936. Woodford relates his concept of a “monetary policy without money” to Wicksell's concept of the pure credit system and to Wicksell's proposal to eliminate inflation by adjusting nominal interest rates to changes in the price level—an idea that has much in common with modern policy rules à la Taylor. He presents the core model of the new synthesis (in shorthand: IS + AS + Taylor rule) as a “neo-Wicksellian framework” that serves to analyze the dynamics of interest-rate gaps and output gaps (2003, chapter 4). Referring to the Wicksellians of the 1920s and 1930s (primarily Erik Lindahl, Gunnar Myrdal, and Friedrich A. Hayek), Woodford grounds his advocacy of rules to fight inflation on the potential non-neutrality of monetary policy: “[I]t is because instability of the general level of prices causes substantial real distortions—leading to inefficient variation both in aggregate employment and output and in the sectoral composition of economic activity—that price stability is important” (2003, p. 5). He thus sees his analysis of interest-rate and output gaps as “an attempt to resurrect a view” that the old Wicksellians had developed in their analyses of cumulative processes.

The papers prepared for this symposium cover a great deal of ground. It is a pleasure to be able to respond to them, as this provides an opportunity to try to clarify some of the aims of my book (Woodford 2003) that may have been insufficiently clear in the original work. But I shall have to restrict my attention to only a few of the most important issues raised in the various papers. I shall consider three classes of issues in particular: the methodology adopted in the book, the role of “cashless” models, and the connection between my work and the Wicksellian tradition.

The Malthusian population doctrine formed an integral part of both theory and policy in classical economics: “[T]he Malthusian theory lent support to the subsistence theory of wages and prepared the way for the Ricardian preoccupation with the land-using bias of economic progress; by explaining poverty in terms of a simple race between population and the means of subsistence, it provided the touchstone for all classical thinking about economic policy” (Blaug 1997, p. 65). Among historians of economic thought there is probably little in this statement with which to disagree. A variety of interpretations, however, have been given to the subsequent career of the population doctrine, including its place in the economics of Alfred Marshall. Economists after John Stuart Mill, Joseph Schumpeter argued, found the population doctrine to be of little theoretical use to economics: many leading economists of the neoclassical school, including Alfred Marshall, “paid their respects to it, even though they no longer based upon it any part of their analytic structures” (1954, p. 890). Mark Blaug, by contrast, suggests that the analysis of population in Marshall's Principles of Economics indicates an “orthodox classical attitude to population problems” (1997, p. 385). Yet another perspective is offered by John Whitaker who remarks that early in his career Marshall resolved to transform the “old political economy into a new science of economics, open to the progressive intellectual and social movements of the day.” His intent was to leave behind the sterile controversies and pessimistic pronouncements of the old political economy, including those associated with the population doctrine (1996, vol. 1, pp. xvii, xx).

It is a fact universally acknowledged that a woman's work is never done and often not counted. It is a fact equally universally acknowledged that most people in the economics profession are not terribly interested in such a fact. It is my purpose to explore this lack of interest by tracing it to the place of sexual division of labor in Adam Smith's work.

Constitutional economics examines the individual's choice-between-rules rather than their choice-within-rules. It is, according to James M. Buchanan, a restatement of the classical political economy of Adam Smith. One of its primary normative implications is the need for a fiscal constitution. Given the late eighteenth century intellectual basis for such fiscal constitutions it appears, at first glance, a little strange that the research program does not consider Edmund Burke's 1780 economic constitution worthy of consideration. The most obvious reason for Burke's exclusion from constitutional political economy is that the methodological basis of Buchanan's twentieth century constitutional economics seems almost the polar opposite of Burke's eighteenth century legislator's attempt to introduce a fiscal constitution. However, both methodologies suffer from internal inconsistency in their cases for a fiscal constitution. One of the primary reasons for this inconsistency is that each needs to appeal to ideas more at home in the methodology of the other. Buchanan adapts a quasi-Burke approach by the introduction of ethical norms not consistent with the self-interest postulate, while Burke adopts a quasi-Buchanan approach by appealing to the principle of consent to justify his reform of institutions that have been formed by custom and tradition. Ultimately, the methodological difference is not as great as it appears at first. The purpose of this paper is to demonstrate that Burke's work deserves recognition in the broader constitutional economics research program because to exclude him on the grounds of methodology is to fail to understand the logical implications of Buchanan's work.