Money and Inflation in a Macroeconomic Model with Indexed Bonds (The Causes, Costs and Compensations of Inflation: An Investigation of Three Problems in Monetary Theory) (Book Review‪)‬

William Coleman. The Causes, Costs and Compensations of Inflation. An Investigation of Three Problems in Monetary Theory. Cheltenham: Edward Elgar. 2007. Pp. 272. ISBN 1-84542-484-0. 69.95 [pounds sterling] (hb). This book starts with three central questions that have preoccupied monetary economists since the emergence of paper money in the eighteenth century: Why is there inflation? Why is inflation costly? Why is inflation beneficial? William Coleman observes tongue-in-cheek: 'There is inflation, bur no one is quite sure how. Inflation is usually bad, but no one really knows why. Inflation is sometimes good, bur no one has a confident answer when'. The main strength of this book is the coherent analytical framework that is constructed step-by-step in a clear and systematic way in the first nine chapters. Following a practice that has become almost universal in contemporary macroeconomics, the model is based on explicit microeconomic foundations. Still, it is appropriate to review this book in a history of thought journal because the author is inspired by the work of John Hicks (1939 [1946]), Nicholas Kaldor (1970), Donald Patinkin (1955 [1965]), Paul Samuelson (1947, pp. 117-22) and other mid-twentieth-century economists. Although sidestepping the contributions of real business cycle macroeconomists and new-Keynesian macroeconomists, William Coleman arrives at an analytical framework that is close to a modern dynamic macroeconomic model with microeconomic foundations. That it is possible to construct a modern macroeconomic model building directly upon the work of famous mid-twentieth-century economists indicates a degree of continuity in macroeconomic thought that is generally not appreciated.