But not a happy accident

Òscar Jordà, Moritz Schularick, Alan M. Taylor in Macrofinancial History and the New Business Cycle Facts (2016):

In the age of credit, monetary aggregates come a distant second when it comes to the association with macroeconomic variables. Real changes in M2 were more closely associated with cyclical fluctuations in real variables than credit before WW2. This is no longer true in the postwar era. As Table 10 demonstrates, in recent times changes in real credit are generally much more tightly aligned with real fluctuations than those of money.

and

The growing correlation between credit and inflation rates is noteworthy. In the pre-WW2 data, the correlation between loan growth and inflation was positive but relatively low. In the post-WW2 era, correlation coefficients rose and are of a similar magnitude to those of money and inflation.

Yeah, and it's good that they point these things out. But really, what else would you expect??? Probably half of our economic policies are dedicated in one way or another to expanding the use of credit, or the availability of credit, or both.^[1]  So of course we use credit. So of course credit has come to replace money as the transaction medium of choice. So of course the things that used to be associated with money are now associated with credit-use. So of course we find J.W. Mason saying

I don't think the idea of "money" as something that has a quantity applies to the credit-money world of today

and

I don’t think a “quantity of money” has been an important part of orthodox macroeconomics or any major heterodox school for many, many years.

and

Basically, once you say “the central bank sets the interest rate”, M disappears from the analysis.

Of course: Mason has a very good understanding of the way the economy works. But I wonder if he ever thought about how and why our world changed from a “quantity of money” world to a "credit-money world". And now I'm thinkin maybe more than half our economic policies serve to expand the use or availability of credit, or both.


As if confirming our transition from a world of money to a world of credit, and the findings of Jordà, Schularick, and Taylor, Christina D. Romer writes

Monetary policy, in particular, appears to have played a crucial role in causing business cycles in the United States since World War II... The role of money in causing business cycles is even stronger if one considers the era before World War II.

Well, now we know.
The role of money was stronger before World War II; the role of credit is stronger since.^[2]  Oddly, though, the word "credit" doesn't even appear in Romer's article. And I don't ever see economists saying the transition to credit was the result of economic policy. It was an accidental result, in my view, but this does not relieve policy and policymakers of responsibility.

Come to think of it, when I said credit is our "transaction medium of choice", I didn't really mean we "chose" it. It's more like we were tricked and trapped and encouraged and induced into using credit, by the design of policy. But I still say our transition to credit was an unintended consequence of policy that had been created for the purpose of boosting economic growth.


James Hamilton pointed out that Jordà, Schularick, and Taylor

also find that the skewness of GDP has become more negative– big movements up have become more subdued relative to downturns.

Seems to me this should count as a cost, not a benefit, when we're tallying up the costs and benefits of our accidental transition to cashlessness.



Notes
1. For example, the debt of the government-created agencies Fannie Mae and Freddie Mac was "equal to 46 percent of the current national debt" -- almost half -- and that was back in 2003. Good thing it's not counted in the Federal debt, huh? Too bad our mortgages are counted in our debt!

2. Credit-use became dominant (and money of secondary importance) in the early 1960s. See The Sweet Spot on my old blog.