THE SCHUMPETER The Economics Society Magazine

Issue 2

Ashes to Ashes: Hedge Funds' Fluctuating Tendancies

Fahad Memnon

Route 66: The Death of American Infrastructure

Tim Robinson

Financial Reform

Joao Marinho

Web 2.0 is the Future of the Corporate World

Sammy Sung

Why Has the UK Not Adopted the Metric System?

David Osborne

The Monetarists

Tim Robinson

Does Monetary Policy Need an Upgrade?

Aime Sindelar

Thomas Aquinas: An Economist for our Time?

David Osborne

News and Extra

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Ashes to Ashes: Hedge Funds' Fluctuating Tendencies
- By Fahad Memon

Much like any team sport, areas of investment climate. With performances accumulating assets to
factor in many key elements that help skew the the value of $2.68 trillion by the end of 2007, as
game in one side’s favour. Among these are field reported by the 2008 Hedge Fund Asset Flows and
conditions, weather conditions, team Trends Report, the industry appeared set to eclipse
cohesiveness and a matter of luck (though for its inauspicious past.
investments, these aptly apply both literally as Unfortunately, with the world, and more
well as metaphorically). specifically the financial sector, at the mercy of a
The field conditions favoured an array of global crisis: hedge funds were no doubt likely to
hedge funds: lack of industrial regulation and meet their share of problems. As banks entrapped
disclosure requirements coupled with an themselves in a sub-prime lending fiasco, hedge
enormous sum of financial-backing, spells prime funds became sitting targets; namely by Porsche
prospects for any profit-centric organization. and Bernard Madoff.
Moreover, with a growing financial sector and an In late October 2008; to the horror of an
ever-present effort to reduce potential losses in abundance of hedge funds, whom assumed short
market operations, the sun shone ripe with positions on Volkswagen shares (expecting future
opportunity. prices to go down; they in effect opted to sell their
Though provided with a great business shares at higher prices and reacquire them at
environment, hedge funds have been plagued cheaper values), Porsche revealed a 74% stake in
with poor form and horrible fortunes, which for the German motor company. With another 20%
the most part of their 60-year history have denied held by the German state of Lower Saxony, hedge
them consistent top honours. Though ascending funds anticipated a short squeeze scenario given
to great heights is no easy task, ensuring that the only 6% of shares were unassigned. Volkswagen
pressure does not deter you from achieving and share prices skyrocketed as numerous hedge funds
maintaining presidential status is equally vital. sought after covering their short positions and
The hedge fund industry’s history is minimizing their losses. The car manufacturer
highlighted by inclinations to reach high, but subsequently became the world’s most valuable
cursed with near-death experiences; achieving business (through market capitalization),
prominence in the early 1960s by outclassing regardless of peoples’ demand for Volkswagen
mutual funds by double-digit figures yet vehicles as the share price exceeded €1,000. Hedge
incurring huge losses going into the 1970s. funds bawled as they hopelessly watched their
Emerging yet again during the 1980s-90s with industrial infrastructure break down before them.
promising hedge funds, the likes of John
Meriwether’s Long-Term Capital Management
(two years of 40% absolute returns), Julian
Robertson’s Tiger Fund (31.7% absolute returns,
as reported in August 1998), Renaissance
Technologies’ Medallion Fund (averaging 35%
annual returns after fees since 1989) and George
Soros’ Quantum Group of Funds (41% annual
returns after fees for the better part of the 1990s).
Nevertheless, while QGF stirred controversy
within the confines of the Bank of England in
1992 by devaluing the strong pound; the
aforementioned former two (LTCM and Tiger)
collapsed horrendously in 1998 and 2000
respectively.
Today, with the likes of Renaissance
Technologies, Man Group PLC and Soros Fund
Management LLC, hedge funds have acquired a Bernie Madoff, mugshot (US Department of Justice)
fair degree of stability with regard to its business
 Nonetheless, with the manslaughter of to protect investors.
Porsche-Volkswagen still in effect, another The hedge fund industry has crumbled yet
calamity arrived in the form of arguably the again, and despite the fact that history illustrates
greatest con in the history of finance. The inevitable resurgence, the question to ask: is this
announcement, in December 2008, revealing Mr. round of trials and tribulations over yet? Or will
Madoff’s business affair, which captivated the mess left behind by Porsche, Madoff and the
countless hedge funds with its low volatility financial sector as a whole result in, as The
appeal, was fundamentally a Ponzi scheme. Also Economist predicts: “perhaps half of all hedge
known as a pyramid scheme; it rewards investors funds [going out] out of business”?
with guaranteed high returns from their own
investment capital. There is essentially no formal Fahad Memon is a Financial Economics
business activity attached to the generation of Student at The City University London.
these proceedings as promised gains fuel
successive reinvestments, allowing for antics to
be carried on for a prolonged period. The list of 1. The Economist, issue 51 of 2008, p.20,
Madoff’s investors, representing a who’s who of “The Madoff affair; Dumb money and dull
hedge funds, as well as other members of the diligence,” paragraph 5, lines 4-6
economy; who adamantly flocked into the trap,
sought little reason to suspect the falsified
verisimilitude. Considering that a former
NASDAQ chairperson was running the ship,
who would question the undertakings? Certainly
not the U.S. Securities and Exchange
Commission (SEC), whom felt no sense of
unconventionality as pertained to Bernard
Madoff’s money-making procedures despite
countless ‘red flags.’
Among the hedging victims was AIA
(Access International Advisors), which suffered
an incredible $1.5 billion, including money
personally invested by fund manager René
Thierry Magon de la Villehuchet. Denoting
feelings of grief and responsibility for losing
such sizeable sums from his highly-esteemed
European clients, de la Villehuchet committed
suicide and was found dead in his office on
December 23rd, 2008.
Counting all other individuals and
entities; ranging from celebrity figures like
Steven Spielberg to financial intermediaries,
such as HSBC, and foundations, like New York
Law School (via Ascot Partners), Madoff’s asset
management operations have caused $50 billion
worth of damages. At present Bernard Madoff
faces a lengthy 150-year prison term and $170
billion forfeiture of wealth.
A conspicuous scar has been left on the
reputation of many high-profile hedge funds the
like of Man Group and Tremont Capital
Management whom “charge whooping fees…
largely on the basis of their ability to pick out
clever people to manage their clients’ money.”1
With recent overwhelming debacles, their
unregulated freedom may also be under threat
with the SEC seeking to continue to its aim for
implementing further laws for disclosure in order
Route 66: The Problem of American Infrastructure
- By Timothy Robinson

pathways; the only feasible travel between the two

"Sixty-Six is the path of a people in flight" cities was by rail.
- 'The Grapes of Wrath', Steinbeck
The Economic Slump
"The Mojave Desert is almost frightening...There is The road was built against the backdrop of America
something infinitely wearying about seeing one summit enduring the plight of the Great Depression. It was
after another prove to be an illusion, range replacing
these dire circumstance that allowed the transition of
range with ruthless monotony."
- 'The Ballad of Route 66', Christopher Hitchens the road from its origin to a superhighway. The road
surface changed from mostly gravelled to paved
"You'll see Amarillo thanks to the labour available during the Depression
Gallup, New Mexico Era exodus of mid America.
Flagstaff, Arizona
Don't forget Winona" This never more so than the movement of people
- '(Get Your Kicks On) Route 66', Bobby Troup escaping the Dust Bowl (centred around the
Oklahoma and Texas panhandles). When the winds,
and farming errors, began to destroy the plains
"Once I built a railroad; now it's done. Brother, can you agriculture (lack of grass roots to hold topsoil down
spare a dime? "
helped the loss) it caused a mass migration of
- 'Brother, can you spare a dime?', E.Y. "Yip"
Harburg people, taking all they had, to start anew in the West.
These people migrated to California and to work
along Route 66.
The builders of Route 66 were these local farmers,
miners and villagers who flocked there, and by 1938
Tod Stiles and Buz Murdock drove down it in a they had completed paving the road, the first US
Corvette in the CBS show 'Route 66'; Christopher Highway to be so.
Hitchens followed in their footsteps writing 'The
Ballad of Route 66'; and Bobby Troup and Nat The Rise of the Roadside
King Cole got their kicks on it. Route 66 is the Post War: the highway led to a boom in the
iconic American highway which once stretched economies of the towns along it, and a dearth of
from its upper-Eastern point in Chicago, Illinois imagery, poetry and illusions to the American
down to its lower-Western end in Los Angeles, Dream. Along with Route 66 and the other
California. highways came the inception of 'Service Stations', of
roadside cafes and restaurants and the necessary
It was in 1926 that Cyrus Avery persuaded the maps and guides. The increase in road travel and
Joint Board of the American Association of State vacation led to an increase in ranches and motels.
Highway Officials to route a road through his Even as early as the 1930s the road saw a rise in
hometown of Tulsa, Oklahoma. Avery called this food stalls, these expanded up until the wartime
road, directed across the desolate plains, the 'Main period. (The war saw a large drop in traffic, aside
Street of America', and in its heyday it became the from the occasional military convoys) Most
'path of a people in flight'; the artery of income for famously perhaps was the expansion of a small hot
the small stores that dotted its length. Millions dog stand from and airport in Monrovia, California
travelled along the road, and thousands made their onto Route 66: In 1940 brothers Richard and
living off the travelling mass. Maurice McDonald built their stand in San
Bernardino, California on Route 66. In 1948 they
Route 66 adapted it to focus sales on burgers and walk-up
Route 66 was built linking up a number of rural sales windows; McDonald's in its modern form was
communities, allowing farmers to transport grain, born.
and allowing trucking firms to operate across those
areas. 66 became a highway in 1927, and was The second obvious implication of the rise of the
gradually paved over the next decade. Prior to the highways, was the inception of the roadside petrol
road there had been only a series of tracks and stations. By the beginning of the 30s the standard,
prefabricated designs started to be introduced to
the road system by the Pure Oil Company, the
Phillips Petroleum Company, and later by Texaco.
Nick Freeth and Paul Taylor write in 'Travelling
Route 66' of the road 'providing easy access to gas,
water and other essentials.' Some of these remain,
turned into makeshift taverns.

The other major business was that of motels; most

of those which were built along 66 were family
owned operations, made popular first by the Sculpture in Tucumcari, New Mexico
affordability and mass movement in the
Depression and secondly by the post-World War 2
popularity of the automobile. The Newest New Deal
President Barack Obama had spoken of a National
The Symbol Infrastructure Reinvestment Bank ($60 Billion
Tucumcari, New Mexico plays home to one of over 10 years to finance transportation projects)
many monuments to Route 66: a sculpture of the Now, with the news of recession, the talk has
numerals. (The number of the road was an shifted from just the need to replace some of the
interesting choice in itself; originally to be United States' weakened infrastructure to the use
designated Route 60, Avery decided 66 had a more of the investment as a stimulus. By placing $25
memorable ring to it.) Tucumcari itself is a billion for immediate use into a 'Jobs and Growth
monument to US construction projects. The city Fund' for infrastructure they had planned to create
grew out of a 'tent city' built by the Pacific a million jobs (by way of comparison: the US
Railroad Company for the construction workers, unemployment rose around 2.75 million between
notorious for gun fights it was originally called January and November of last year). Even this aim
'Six Shooter Siding'. One could also argue that has expanded to stimulus bill ('The American
part of the enduring legacy of Route 66 is not only Recovery and Reinvestment Act, 2009'), which
one of hardship but, by virtue of it providing easier passed through the American legislator and was
access to the West, it became a clarion call for signed into law recently. Of this bill around $80bn
those seeking the climate and palm trees of goes towards infrastructure, which Lawrence
California. Summers described as the biggest investment since
Dwight Eisenhower's.
The End of the Road
Route 66 began to die in 1956; President Dwight Regardless of the new investment placed into the
Eisenhower signed the Highway Act, and the US infrastructure to solve its myriad problems
famous road was bypassed by a series of strings of (from bridge collapses to inefficient roads in poor
limited access highways which left the small towns condition, to insufficient rail capacity) the era of
along Route 66 ignored. It took about three Route 66 came to an end with its slow redundancy.
decades for the slow decline as the interstate In 2009 the funding for the preservation of Route
highway system was completed. 66 Corridor may end, the 1999 act authorising $10
million to preserve the properties along Route 66
The bypass destroyed the viability of the stores only created funding for a ten year period.
along the highway, and of the service stations, and
the once popular motels. Large portions of the As a travel guide this piece won’t be useful, since
road simply ceased and gave way to the dirt tracks; 66 wanders across the Texas panhandle and
many of those towns along its length vanished. through a large portion of the Mojave, there are far
more appealing roads. However as a microcosm
In 1984 Williams, Arizona was the last town along of the American experience and the impact and
Route 66 bypassed. In 1986 Route 66 was influence of the open road on American culture
decommissioned. The road had left behind it a and economy it is without parallel.
changed scenery, and the West coast had changed:
from the frontier to the metropolis (the, now, most For more on the preservation program see:
populous state in the Union) with one of the most http://www.nps.gov/history/rt66/prgrm/index.htm
dramatic movements of people in the US history,
facilitated, enabled even, by Route 66. Tim Robinson is an Economics Student at The
City University, London and the Editor of The
Schumpeter.
Financial Reform
- By Joao Marinho

In July 2007 the collapse of two hedge funds

owned by Bear Stearns, specialised in trading
collateralized debt obligations (CDOs), was a
signal of the turmoil to come in the financial
services industry. The market for CDOs had
become illiquid and it turned out these assets
were overvalued based on mark-to-market
accounting. This resulted in other banks
around the world having to write-down the
value of similar toxic assets. As the
exposures to these assets were slowly
unravelled, they were found to be of very
large proportions. This was possible due to
the leverage undertaken by banks and the
resulting swelling of their balance sheets. In
2007 RBS had a balance sheet of £1.9
trillion, larger than UK GDP. sign of a shifting global balance. Both on an
individual and collective level, certain key
Through the subsequent months we have areas regarding the financial system need to
seen record losses by banks in the US and be addressed:
Europe. What has followed is the failure of
many renowned institutions. Some were Risk management practises by banks and
acquired (the most notable ones through other institutions must be scrutinised. Current
government support), some were liquidated models used are clearly flawed and this is
and others were partly or fully nationalised. largely attributable to the time-scale they are
Of the five largest US investment banks, based on. Most models only factor in the past
three no longer exist independently and the 10 years which has been a period of relative
remaining two have become deposit-taking stability. More stringent stress tests must be
institutions in order to call on the Federal carried out, using a larger time-scale, and it is
Reserve as a lender of last resort. Both in the the responsibility of regulatory bodies, such
UK and US major banks (Citi and RBS) have as the FSA, to oversee these. Furthermore,
become partly nationalised. Furthermore, the once completed, the results from these stress
governments on both sides of the Atlantic tests should be made publicly available.
have set up insurance schemes for these
banks’ toxic assets. The need to restore Financial institutions should now focus on
functionality and confidence in the banking what was once considered their core services.
sector is undisputed; however there is much We can expect to see a large reduction in
debate over the method used. There are more risky activities, such as proprietary
strong arguments for alternative measures trading, and a focus on advisory and
such as full nationalisation or the purchase of traditional products by the investment banks.
the toxic assets, as opposed to the insurance The exacerbated risk taking culture was
of these. strongly illustrated by AIG’s financial-
products division. One of the world’s
Looking towards the future, leaders from relatively stable and largest insurance
around the world have expressed the need for companies was brought to its knees by
reform of practises and regulation of the hedge-fund like activity from one division
industry. Take for example Gordon Brown’s able to exploit a gap in the regulatory system.
recent address to the US congress over the US Federal Reserve Chairman Ben Bernanke
matter. This highlights the importance of a has recently expressed his anger at this.
coordinated effort and the inclusion of so
many countries in the discussion is a clear
One of the most concerning areas uncovered by the crisis is that of institutions that are “too large to
fail”. Indeed, under current conditions, failures of companies such as RBS, AIG and Citigroup
would create immeasurable shocks through both the financial services industry and the wider
economy. Bank bonds represent a quarter of US investment grade corporate bonds and the potential
collapse in confidence in the bond market alone would be disastrous. However, given most banks’
recent poor administration, the continued government bail-outs may create moral hazard where the
upside of risk taking is large but there is a limited downside. Therefore governments and
regulatory bodies must work together to establish a system where large institutions can go bankrupt
without the large systemic risks.

Stability in the financial services industry is of paramount importance and essential to the recovery
of the real economy. We are currently going through a painful process and although the flaws and
limitations of our system were exposed, the system’s ability to adapt and change is in itself its
greatest strength. Changes in the coming months are expected. The financial services landscape is
very different from 2 years ago and new reform will re-shape it further.

Joao Marinho is a student at Queen Mary, University of London

Web 2.0 is the Future of the Corporate World
- By Sammy Sung

According to Moore’s Law (1958), the

numbers of transistors on a computer chip
would double every year. What Moore
probably did not have in mind was that the
concept would evolve into something more
than just technological. This year at university
has proven that in more than one occasion.
Lecturers are increasingly trying to emphasize
the importance of knowledge management.
Trying to teach students that technology has
come to that point where it is not just about
inventing new technology anymore, but that
there are millions of ways to utilize this
technology and the transformation of Web 1.0
to Web 2.0 is the full proof of this. GTEC 2008, Image by Mike Gifford
A recent article in the Financial Times via Wikimedia Commons
described how businesses have started
applying Web 2.0 to their businesses, but
managers tend to misunderstand what Web 2.0 together with Web 2.0 is the Intelligent
really is. With more than 10 million hits on Exploiter framework that was completed
Google, there is still a huge argument going on only recently by two professors of CASS
about the meaning of Web 2.0. Some people Business School, Clive Holtham and Nigel
use it as a marketing model, while others Courtney. This framework tries to describe
believe it to be an entirely new theory. The the complex skills and roles involved in
exact idea of Web 2.0 started at the Web 2.0 effectively handling information,
conference hosted by O’Reilly Media in 2004. communication and technology. What is
According to Tim O’Reilly (2005), founder perhaps more important is that it shows
and CEO of O’Reilly Media, Web 2.0 does not how technology can be more than just new
have any hard boundaries, but rather contains a hardware or software. It can be difficult to
core with a set of principles and practices that convince managers that knowledge
demonstrate some or all of them.. Though there management and intelligence exploiting is
are already many websites that qualify as being a long-term investment that can
part of Web 2.0, analysts believe it can be significantly improve the company’s
exploited more thoroughly. This does not have position on the market. The biggest
to mean that Web 2.0 is constrained with ideas obstacle to knowledge management is to
that have to do with the internet alone. The convince business leaders that the free-flow
possibilities of Web 2.0 are phenomenal. of information is not always a bad thing.
The rise of Web 2.0 has given Postcodes today, for example, describe
innovative opportunities to potential more than just the location of your house.
entrepreneurs and perhaps too many brilliant When employees at the supermarket type in
ideas. The Economist wrote that venture your postcode, they can tell what you like
capitalists may have wasted money by to eat, how often you do your shopping,
investing in too many new businesses that are how much money you spend, etc. These
focused on e-commerce this year. It is not are important details, it will tell the
surprising that with the success of numerous supermarket what they should focus on and
Web 2.0 applications, there will be people who how much priority they should give a
also want a piece of the pie and even though particular product. It also explains to
many will fail exploiting this concept, it should employers that perhaps they should
be very much stimulated. purchase a more diverse range of products.
One of the concepts that was born
 The whole idea of using information should of course not be limited to just
postcodes. Knowledge Management is defined as the technologies that are involved in
creating disseminating and utilizing knowledge data. Constantly recording information
could help organisations understand customer behaviour and segment them into
appropriate target groups. As businesses expand to bigger organisations, it is often the
micro management that they lack. Occasionally it lies in the tiny details like knowing and
sharing information about customers that can improve the company considerably and as
the papers have been collectively suggesting, managers have understood this and are
slowly changing.

The Web 2.0 has caused business to quietly revolutionize organisations from
within, but it has started to catch the attention of business leaders. According to David
Bailey, of PA Consulting, Web 2.0 has already evolved into a tool that is has proven to be
powerful in product development areas (2008). The concept has received positive
feedback from customers as waiting time has been reduced with the use of wikis. Many
organisations use social-networking sites as a tool for marketing to reach a wider
audience. Record labels use YouTube to evaluate how successful a song is and how
attractive an artist is to a new market. For many artists coming from East Asia, it is
considered a massive challenge to enter the US market. Therefore having a powerful and
attractive marketing strategy could make a difference. Utilizing websites like Youtube
could then prove to be a worthy instrument on testing popularity.

Executives may find that Web 2.0 is already being implemented into their
organisations without them knowing it. It has proven itself to be potential, effective and
powerful to the corporate world. Soon it will be necessary for businesses to implement
web 2.0 as it will become impossible to work without. At the current rate, technology will
begin their next step towards Web 3.0 which Jonathan Richards of The Times describes as
“giving the internet itself a brain”. Intelligent exploiting will soon become crucial for
organisations to keep up with customer demand and it is up to the executives utilize that
and maintain their position on the market.

Sammy Sung is a Business Studies Student of Cass Business School, and the current
President of the Economics Society.
Why, Unlike the Rest of the Civilised World, has the United
Kingdom not Adopted Metric Road Signs?
2.0 F C W - By David Osborne

The United Kingdom, just like every developed

country, excluding the United States, is officially
metric, so why do road signs show miles, yards and
feet, although designed and manufactured in
millimetres? The metric system was developed to
allow for an international standard in weights and
measures. This article aims to ascertain why the UK
continues to be an anomalous example of a metric
country by keeping its road signs imperial. It will
assess the estimated costs of converting the road signs,
the economic benefits of using a single system of
measurement versus the economic costs of using
imperial signage whilst being officially metric. It will
also compare Ireland’s metric switchover in 2005 to
the lack thereof of the UK. This article will also ignore
the failed target to convert road signs by 1975.
There are varying estimates of how much a switchover
to metric signage would cost. According to the White
Paper on Metrication “The most expensive operation
within the field of public administration will be the
conversion of all road signs showing miles (or mph) to Source: UKMA (2006), DfT(2006)
kilometres (or kph). The cost of conversion of all road This graph compares the estimates of the conversion costs with
the total expenditure on roads in the year 2006-2007. Notice that
speed signs is likely to be about £2m and of all road the UKMA’s lower estimate is almost negligible compared to
signs indicating distance appreciably more”. total expenditure.
(Department of Trade and Industry, 1972 paragraph
107). In today’s prices (Using the Retail Price Index)
that estimate is around £21 million. Since then, the only for England, however the estimates
Department for Transport (DfT) and the UK Metric are for the entire Kingdom. Therefore,
Association have both made estimates about the cost adding the Scottish and Welsh road
of converting road signs. The DfT estimated that the expenditure would lower the percentage of
cost would be between £565 million and £644 million. expenditure for both estimates.
(Department for Transport 2006) The UK Metric The Republic of Ireland was in a similar situation
Association however estimated the cost of the as the UK until January 2005, when they converted
switchover to be significantly less, approximating their road signs to metric. Ireland’s Department of
costs between £31 million and £160 million (Paice Transport (DoT) estimated that the switchover
2006). In the period 2006-2007, expenditure on roads would cost € 11.5 million. In reality, the switch
was approximately £7.01 billion for England alone had a price tag of € 10.5 million (€1 million less
(Department for Transport 2008). The UKMA than the estimate). (Paice 2006). In addition to the
estimates amount to 0.49% and 2.3% of the DfT’s switchover costing less than expected, the
total expenditure on roads, whilst the estimates from conversion day went with no hiccoughs. The
the DfT amount to 8.06% and 9.19% of total Republic of Ireland is much smaller than the UK in
expenditure. The graphs included illustrate the terms of population and land area, so converting
previous figures. road signs there is inevitably going to be cheaper
There are facts about these estimates that need to be than in the UK. However, the cost-effective
taken into consideration: approach taken by Ireland towards metrication of
• The estimates made by the DfT were made signage could be emulated by the UK.
based on previous estimates in 1989. The UK’s reluctance to switch over to metric units
• The Estimates made by the UKMA are based on road signs has many implicit as well as explicit
on the 2005 Irish switchover. costs.
• The figure for total expenditure on roads is
 Source:UKMA (2006) & DfT (2006)
This graph compares the difference in estimates, between the UK Metric Association and the
Department for Transport.

An implicit cost of not going metric is the waste of the metric education, which has
been taught in British schools since 1974 (Paice 2004). According to the British
Weights & Measures Association, “By the time most young people reach their 20s,
metric education has been replaced by the practical experience of British units”.
(British Weights and Measures Association 2001). This statement is reality. Education
is a benefit in kind and therefore is a burden of the taxpayer. The fact that a metric
education is all but useless on British roads means that the taxpayer’s money is being
wasted. A less subtle cost of using imperial signage is the fact that they have the
potential to result in, especially among the European drivers. There have been
countless news reports of Heavy Goods Vehicles from the Continent striking low
bridges where signs are exclusively imperial, because lorry drivers from the continent
do not understand imperial measures. This costs millions in repairs to bridges, railway
lines, roads and Lorries each year and in extreme cases has resulted in injuries. (UK
Metric Association 2008).

There is no good reason why Britain has not adopted metric road signage. There is
poor excuse that the British population incorrectly view the metric system as a
European Union imposition on British culture. The cost of conversion is also
perceived to be a deterrent to adopting metric signage, but the longer it is left, the
more expensive it will become. The fact that the metric system is the official system of
measurements in the every country in the world (excluding Burma, Liberia and the
United States,) means that it is inevitable that Britain will have to convert road signs to
metric at some point in time (As will Burma, Liberia and the US). Furthermore, the
fact that the Republic of Ireland, Australia, New Zealand and Canada have recently
converted their road signs to metric must infer that there are economic benefits from
the switchover. By clinging on to imperial signage, the UK is doing nothing but
hindering the benefits of being a metric nation. In conclusion, the UK still uses
imperial road signs because there has been no thorough up-to-date research into the
matter, in addition to general political ignorance.

David Osborne is an Economics Student at The City University, London

 The Monetarists: The Rise of Monetarism
- By Timothy Robinson

“Inflation is always and everywhere a monetary unemployment rate. Worse, to maintain a rate of
phenomenon. To control inflation, you need to control unemployment below that the of natural rate would
the money supply” require ever accelerating rates of inflation. This theory
- Milton Friedman had pre-empted the occurrence of data supporting it.
“At last, I have discovered the cause of Christmas!” Both this narrative of the power of monetary policy from
- Nicholas Kaldor (Noting that money supply increases in December and Friedman and Schwatz and the existence of a natural
declines in January) rate of unemployment allowed a reassessment of the use
of fiscal and monetary policy. However, this all
T o cover the entire history of the development of occurred against a backdrop of high fiscal expenditure,
Monetarism would be too grand a scope for this article, and the rejection in practice of the monetarist precept to
so it the really should be titled Friedman's Monetarism, have stable, predictable monetary policy (the k percent
or a short history of Modern Monetarism from 1956. rule: money supply should be increased by a constant
Why 1956? That year Chicago Economist Milton percent, irrespective of business cycles).
Friedman published a series of essays, one of which he
wrote titled "The Quantity Theory of Money: A The US had a series of arguably Keynesian Presidents,
Restatement." Friedman set out a version of the QTM, JFK, Johnson and the "Great Society" programmes
which in essence meant that an increase in money (Medicare, Medicaid, the War on Poverty), even to
supply would increase spending, people would not hold Nixon's famous, oft misquoted, statement: "I am a
the additional money in idle balances. Friedman saw Keynesian now in economics". (Less memorable
the relation between money and prices as a uniformity perhaps than Friedman's "In one sense, we are all
on the order of that found in the physical sciences. He Keynesians now; in another, nobody is any longer a
aimed to save the QTM from the "atrophied and rigid Keynesian".) The US Government operating an
caricature" of it; to restore the version that had been expansionist policy, in 1968 Federal spending reached a
maintained in Chicago. then record high of about $180 billion. (With a $25 Bn
deficit). Meanwhile the UK saw the publication in 1959
Money Matters of the Radcliffe Report, rejecting the prescription of a
Two reasons for the growth of Monetarism: one stated steady growth in money supply it set the tone for
by Friedman in his 1967 Presidential Inaugural Address monetary policy in the UK through the 1960s.
to the American Economic Association (AEA): the "re-
evaluation of the role money played from 1929 to 1933". Political Monetarism
What Brad Delong called the emergence " from the old I will end on a short description of the political influence
oral Chicago monetarist tradition of the Great of Monetarism throughout the 70s and 80s. Delong has
Depression era". Not stated in the AEA address is the argued this branch of monetarism differed from its
role Friedman himself played in this. His work with Classical Monetarist cousin: The political form of
Anna Schwartz A Monetary History of the United States Monetarism, Delong argued, believed velocity of money
from 1867 - 1960 was an ambitious project to detail the was stable; that the Central Bank could and should
role of money in the US over that period. This piece, so control money stock, and that fiscal stimulus would not
wrote the journalist David Smith, had the sense of boost demand, unless financed by printing money.
reading a 'whodunnit'.
Finally, in 1976 Jim Callaghan told the Labour Party
The second was the content of the address itself: what conference that Keynesian demand management was
monetary policy can and cannot do. Friedman examined finished, and then the late 70s and early 80s saw the
the negative relation between unemployment and elections of Thatcher and Reagan and the concept of
inflation, famously known as the Phillips Curve. This Keynesian fiscal policy lost its lustre amongst the
relation, which held in the research of Phillips, political class. Thatcher, who said at the Conference in
Samuelson and Solow, began to disappear in the 1970s. 1968 that the essential role of government was
Friedman outlined the theory of a long-run Phillips managing money supply, was able to put this into
curve where the trade-off no longer existed; where there practice.
existed a natural rate for unemployment, as such See Also:
monetary policy had only a short term impact on the 'The Rise and Fall of Monetarism', David Smith.
'The Monetarist Counterrevolution', Brad Delong
Does Monetary Policy Need an Upgrade?
- By Aime Sindayigaya

The current economic crisis is being discussed who can start spending, as a result businesses
over various types of media. However, most of activities increase and the demand for labour and
the time it is difficult to understand what capital rises. One problem with the increase in
solutions have been applied to solve what and money supply is that when it is not well controlled
why. In particular, it is hard to understand why it may lead to inflation. It would be fine if and
the governments decided to bail out only the only if our government could apply the same
banking industry and no other. Why has the strategy and increase the money supply such that
interest been cut to 1.5%? The current spending increases, without rising the rate of
economics crisis is complicated until you listen inflation. What does it take to increase the money
to what experts say about it and read the supply then?
textbooks to get detailed explanations of
economic elements playing a key role in
determining our fate during this uncertain time.
I attended a conference that discussed the
subprime turmoil and the speaker pointed out
that the current economic crisis will never be
resolved wholly by fiscal policy but by monetary
policy. The conference was held at the time the
UK government had just promised to reduce the
VAT to 15%. I did not want to believe that the
speaker was just against the government’s
decision but I left puzzled. The reason I was
confused was that the monetary policy already The Bank of England in Threadneedle Street, London
applied to solving the current economic crisis, England
had not yet given any positive result. The first
banking bail out had already been granted and One of the techniques to increase the supply of
the UK base interest rate reduced from 3% to money suggested in the economics book, is the
1.5% and nothing had changed. More often, we central bank to inject the money in the banks. By
are told it will take time for the effect of the bail October 2008 the UK government had injected
out to show but as I write this, a second cash bail approximately £37 billion into the banking
out is to be issued to the banks! industry in the form of a bailout. Part of the reason
I find out that the monetary policy’s functions such a large amount of money is only granted to
are to control money supply, set the interest rate the banking sector and not to any other sector, is
and ration the amount of credit. Rationing the because the banks have the capacity to expand the
amount of credit involves a central bank money supply. In fact, when banks receive extra
restricting banks' total lending to a certain cash from the Central Bank, they use the fund as a
amount, or reduce lending to riskier customers or basis of credit creation. While this sounds simple,
for non essential purchase and control the level what are the implications of the second element of
of hire purchase credit. This function was the monetary policy: interest rates?
abandoned by the UK government since it
prevented free competition in financial markets. Textbooks suggest that banks’ willingness to take
Consequently, it can be concluded that the only the extra money offered by the central bank
elements of the monetary policy to determine our depends on the interest rate the central bank
fate in this crisis are the money supply and the charges. The lower the base interest rate, the more
interest rate. banks are willing to accept the fund. Each time
An increase in the money supply reduces the money is injected into an economy, the supply of
base interest rate in the money market and as a money is increased whilst the demand for money
result investments are increased. Furthermore, is reduced; and a new equilibrium in the money
the increase in money supply increases real market is formed.
balances, providing surplus cash to consumers
So you can understand the reason for reducing view, banks are concerned with the health of their
the base interest rate when the bail out was balance sheet; that is why banks are very cautious
granted in October 2008. The reduction of the of who they lend to. Even lending between banks
base interest rate by the central bank is not profit themselves is difficult as the LIBOR is above the
oriented; it is a matter of economic mechanism. normal estimated market level. In fact one of the
Sometimes the base interest can be reduced by solutions being studied at the moment by
the monetary policy committee with the governments worldwide is to buying all toxic
objective of increasing borrowing within an assets from banks. There is a hope that this action
economy. In this situation the interest rate is cut will adjust the banks’ balance sheet and prompt
and then the central bank carries out the them to resume lending.
necessary operations to adjust the money supply In conclusion, it is hard to convince people that
so that the equilibrium on the money market normal monetary policy will sort out the current
reflects the newly set base interest rate. This economic crisis. There is a need for the banks,
situation happened in the UK, in November, governments and economists to cooperate on a
December 2008 and January 2009, the interest global basis and design a strong monetary policy
rate was cut to 3%, 2% and 1.5%. The reduction framework which can handle extreme situations,
in the base interest rate also means that the and is still suitable for our modern, innovative
London Interbank Offered Rate (LIBOR) used financial sector.
for banks when lending to each other, is
presumably reduced. In normal economic times Aime Sindayigaya is a Postgraduate Student at
the LIBOR is set 0.1 or 0.2 above the base The City University, London.
interest; meaning that at the moment the LIBOR
should be 1.6% or 1.7%, but instead it is 2.17%.
(At the time of writing)
The action taken by the government to bailout
the banks is justified as a way to stimulate
spending in the economy through injecting
money into the banking industry, with a hope
that banks will pass on the fund to consumers as
credit. There has not been any hesitation in the
banks taking the money offered and the Bank of
England cutting the base interest rate to stimulate
borrowing and investment, but yet the banks are
not lending. The question we may ask ourselves
is why the banks are not willing to lend?
One reason might be that banks want to operate
on higher liquidity ratio particularly if they
believe people will want to withdraw cash. This
could be the situation we are in at the moment as
banks fear that what happened to Northern Rock
may happen to them. As a result banks have
probably chosen to hold a bigger portion of
liquid assets in the event of a bank run. Another
possible reason is that banks do not want to be
declared insolvent and end up like Lehman
Brothers; as a result banks must ensure an
adequate and guaranteed level of assets is
maintained against their liabilities by increasing
their deposits and not lending. Many British
banks have written off credit generated from the
subprime lending, hence their balance sheets
have been heavily affected. Therefore, the extra
fund received from the Bank of England may not
be used for credit creation but to fill in the gap in
the banks’ balance sheet created by the losses
generated from the subprime business. In my
St. Thomas Aquinas: was he an economist of our time?
- By David Osborne

Usury, which is condemned in the Bible, Torah

and Koran, may be as far as many minds go
when it comes to connecting religion and
economic principles. However religious figures
have had much more influence on the economic
principles of our day than we may wish to
believe. A notable figure in this respect is St.
Thomas Aquinas, who was an Italian Dominican
priest.

We’re familiar with Adam Smith’s works on the

division of labour, but did the principle of
division of labour really begin with Smith? In
“Summa Theologica II”, (published five hundred
years before Smith’s) “The Wealth of Nations,”
Aquinas states:

“One man does not suffice to perform all those

acts demanded by society, and therefore it is
necessary that different persons be occupied in
different pursuits.”

This view is one built upon Smith, in order to

form his view on the subject. It highlights the
similarities between economic thinkers
throughout time. Carlo Crivelli's depiction of St. Thomas Aquinas
from the Demidoff Altarpiece c. 1476
However, Aquinas’ “economic” perspectives
were not all in tandem with those of famous
economists such as Smith. For example; David Osborne is an Economics Student at The
Government Intervention, where Smith argued City University, London.
that each person acting in selfish greed benefits
the economy on a whole, therefore government Notes:
intervention was absolutely unnecessary. 1
Aquinas’s view differed considerably. He Thomas Aquinas: A Pioneer in the Field of Law
believed that government had a duty to regulate & Economics, Robert W. McGee, Barry
the economy, but only within reason. University
Published in Western State University Law
In the wake of the Credit Crunch, we can see the Review, Volume 18, No. 1 (Fall, 1990), 471-483.
effects of both types of economy. The “selfish”
Economy as according to Smith, has taken a 2 St. Thomas Aquinas, Quaestiones quodlibetales
severe beating, and governments are beginning vii. 17; cf. Summa Contra Gentiles iii 132; Contra
to use the theory of regulation brought forward Impugnantes Dei Cultum et Religionem v. 27, as
by St. Thomas Aquinas. 1 quoted in Dino Bigongiari, The Political Ideas of
St. Thomas Aquinas ix (1953).
News Summary Quotes

Patrick Minford speaks at the University " If the issue was to stabilize the financial
The former adviser to the Treasury Sir Patrick system and prevent a collapse, and get by the
Minford, Professor of Economics at Cardiff point where the market is rattled wondering
University, spoke on the Causes or and the which big institution will go down next, I think
Response to the Credit Crisis in a talk titled on a scale of one to 10 we are very close to 10."
"Looking up while going down: The Causes and
Consequences of the Current Economic Crisis" - Henry Paulson, Former US Treasury
Secretary.
The Schumpeter Online (In a comment to the WSJ CEO Council on
the 17th of November 2008. On the 23rd of
The Schumpeter is now online at November Citigroup was given a $20 billion
theschumpeter.blogspot.com direct investment and the government backed
The Economics Society has also launched a $306 billion in loans and securities.)
Facebook group to provide immediate updates on
events to members. Join us at: "[T]he objective ought to be increased protection
www.facebook.com/group.php?gid=31445513286 against systemic risk, and increased protection
for consumers...So it seems to me that you have
to find the optimum balance between increasing
Hearsay and Anecdotes protections against risk and maintaining the
benefits of market-based systems, as opposed to
the objective of minimizing or even eliminating
risk"
Thinking Inside the Box
The Bentham Project launches a blog.
- Robert Rubin, Former US Treasury
Secretary, at the same event.
The famous 18th Century economist Jeremy
Bentham has been reborn courtesy of a new blog
"Beneath the surface of overall stability in the
from the Bentham Project. Jeremy Bentham will
UK economy lies a remarkable imbalance
offer his thoughts through the website hosted by
between a buoyant consumer and housing sector,
the Nature Network London. Look for an
on the one hand, and weak external demand, on
introduction to the new fortnightly blog at:
the other... a large negative demand shock might
www.ucl.ac.uk/Bentham-Project/info/blog.htm
result in an undershoot of the inflation target for
some considerable time."
"Pay what you want"
London Restaurant runs Freakonomics scheme - Mervyn King, Governor of the Bank of
England, in a speech given to the London
The Little Bay restaurant in London ran a scheme School of Economics in November 2002.
offering patrons the chance to decide how much
the meal is worth. The owner, Peter Ilic, provided "The SEC continues to roar like a mouse, and
customers with no cheque giving them the bite like a flea...I gift wrapped and delivered
opportunity to decide whether to pay between a the largest Ponzi scheme in history to [the SEC],
"penny and 50 pounds". and somehow they couldn't be bothered to
conduct a thorough and proper
investigation...[The SEC is] both a captive
Pictures of the Recession regulator and a failed regulator"
Slate Magazine looks for the iconic images of this - Harry Marcopolis, a Private Fraud
recession to go alongside the breadlines and wagons of
Investigator who wrote a report to the SEC
the Great Depression.
www.slate.com/id/2211959/ titled: "The World's Largest Hedge Fund is a
Fraud", in his testimony to Congress in the
Madoff Hearing.

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Cover Pictures by: Hay Kranen, David Shankbone, Ivo Shandor, from Wikimedia Commons.