by Dr. David S. Bieri, Virginia Tech
Presentation Date: January 28, 2016
In a radical departure from its origins over half a century ago, the contemporary canon of regional economic theory has enshrined the classical dichotomy in that it treats the spheres of money and production as analytically distinct. Regional analysis thus handles the monetary-financial system as the proverbial veil which renders money and financial interrelations at best a source for short-term frictions, but not relevant to the determination of regional market equilibria. In short, real factors determine real regional variables. The recent financial crisis has been a powerful reminder that money and finance are also – always and everywhere – local phenomena with real effects. In a renewed engagement with regional aspects of money and credit, this paper re-examines the monetary content in the foundational works of two of the central intellectual pillars of regional science, August Lösch andWalter Isard – the former a student of Joseph Schumpeter’s and the latter a student of Alvin Hansen’s, both Lösch and Isard represent important branches in the long lineage of 20th century Continental and U.S. monetary thought, respectively. Revisiting Lösch’s analysis of the spatial consequences of monetary-financial arrangements and the flow of credit money across space, I show that these lesser-known aspects of Lösch’s work are consistent with a spatialized version of contemporary tenets of heterodox monetary theory. First, Lösch’s (1940) work on financial markets acknowledges the importance of capital flows throughout the urban hierarchy, highlighting the spatial relationship between financial variables and institutional functions, such as interest rates or credit intermediation. Second, Lösch (1949, 1954) recognizes that money and credit are fundamentally hierarchical in nature and that all money is credit money, even state money. In the case of Isard’s (1956, 1960) ground-breaking treatment of on the regional flow of funds, I emphasize linkages between the institutional evolution of money, credit and banking and the spatial structure of money flows. As a whole, Isard understood that the structure of regional economic activity is influenced by how institutional components of the monetary-financial system (financial instruments, financial markets, monetary and financial intermediaries) promote the interregional mobility of funds and, by extension, the mobility of funds among the various sectors of the space economy.