The Money Illusion: Market Monetarism, the Great Recession, and the Future of Monetary Policy

Is it possible that the consensus around what caused the Great Recession is almost entirely wrong? It has happened before. Just as Milton Friedman and Anna Schwartz led the economics community in the 1960s to reevaluate its view of what caused the Great Depression, the same may be happening now to economists’ understanding of the first economic crisis of this century.

Without relitigating the problems of housing markets and banking crises, monetary economist Scott Sumner argues that the Great Recession came down to one thing: nominal GDP, the sum of all nominal spending in the economy, which the Federal Reserve erred in allowing to plummet. The Money Illusion: Market Monetarism, the Great Recession, and the Future of Monetary Policy is an end-to-end case for this school of thought, known as market monetarism, written by its leading voice in economics. Based almost entirely on standard macroeconomic concepts, this highly accessible text lays the groundwork for a simple yet fundamentally radical understanding of how monetary policy can work best: by providing a stable environment for a market economy to flourish.

About the Author

Scott Sumner is the Ralph G. Hawtrey Chair of Monetary Policy at the Mercatus Center at George Mason University. He is also professor emeritus at Bentley University and research fellow at the Independent Institute. In his writing and research, Sumner specializes in monetary policy, the role of the international gold market in the Great Depression, and the history of macroeconomic thought.

Named by Foreign Policy magazine in 2012 as one of the “top 100 global thinkers,” Sumner has published papers in academic journals including the Journal of Political Economy, Economic Inquiry, and the Journal of Money, Credit, and Banking. He is author of the popular economics blog The Money Illusion and a contributor to EconLog. His work has appeared in media outlets nationwide and beyond, including the New York Times, Wall Street Journal, BBC, CNBC, Economist, Financial Times, Politico, National Interest, and The American.

Sumner received his PhD and MA in economics from the University of Chicago and his BA in economics from the University of Wisconsin.

Advance Praise

Douglas Irwin, Dartmouth College

“As the world’s leading ‘market monetarist,’ Sumner has forced economists and policymakers to rethink their approach to monetary policy, particularly since the Great Recession of 2008–9. This long-awaited book is clearly and effectively written and brings Sumner’s unique and valuable perspective into full view.”

Peter Ireland, Boston College

“Sumner summarizes, clearly and concisely, lessons drawn from a lifetime of studying both monetary theory and economic history. He skillfully shows how his market monetarist framework helps us understand what went wrong in 2008 and what it will take to bring growth and stability back to the US economy.”

Vincent Geloso, King’s University College

“Sumner has assembled all of his ideas and commentary since the beginning of the Great Recession regarding monetary policy, encompassing his writing in journals, books, blogs, and policy papers. Given that Sumner is basically the standard bearer of the market monetarists, this is a welcome task. His systematic application of market monetarism to the Great Recession constitutes a valuable contribution and will probably be used as a reference by many. The virtue of the book is that it is accessible to all.”

Nick Rowe, Carleton University

“Sumner uses his well-honed blogging skills to explain, for both amateur and professional economists, the ‘market monetarist’ perspective. The high point is his historical analysis of monetary policy, in the United States and elsewhere, during the 2008 Great Recession. Sumner’s thesis directly contradicts the prevailing view that central banks simply lacked the power to offset the overwhelming force of a massive financial shock, and I think his analysis will eventually prove convincing.”