Download “Moonlights, Sunspots and Frontier Finance: On the Nexus between

David Bieri
∗ Global
Forum on Urban and Regional Resilience, Virginia Tech, Blacksburg, VA
Political Space Economy Lab, Ann Arbor, MI
GFURR Seminar – March 2015
Urban questions
• Why do cities exist?
• Why do cities vary in size?
• Why do competing firms cluster?
• What causes urban growth and decline?
• Who benefits from urban growth?
 How does the monetary-financial system matter
for cities in light of these questions?
The fluttering veil
“It is well that the people of the nation do not understand our banking and
monetary system, for if they did, I believe there would be a revolution by
tomorrow morning.”
Henry Ford (1922)
Urban questions
• Conventional approaches in urban economics,
economic geography do not consider role of
monetary-financial system in process of
urbanization.
• Focus of this research:
 How the “spatial non-neutrality of money” shapes the
American metropolis
 Historical process of U.S. urbanization driven by
changing tension between “money interest” and “the
public interest”
 Develop a spatial theory of financial instability (cf. Lösch
Spatial flow of funds view
Spatial flow of funds view
Source: Copeland (1952)
Spatial flow of funds view
• Flow of funds view: Integration of “real” and “monetary”
sectors, based on economic a/cs by different sectors.
• Replacing hydraulic model of money supply (stock of
water, flows through pipes, or held in reservoirs by banks)
with model of “money as electricity” (Copeland
1947,1952).
– Borrowing sectors acquire funds, lending sectors acquire assets in
form of promises to pay
– No (strict) conceptual separation between supply of and demand
for money
– Crediting of an account simultaneous generates debit to another
account (“ […] just as is the switching on of an electrical appliance
and the draw upon electrical capacity” [Mayhew, 2011])
A tale of two hierarchies
• Hierarchy of cities: Cities as “organisations”, positioned
within a spatial order of economic production.
• Hierarchy of money: All money is credit money and credit
is always and everywhere fundamentally hierarchical in
nature. Credit allocation as a core function of modern
states.
 Historical interaction between urban and monetary
hierarchy matters for distribution and evolution of
economic activity across space.
 Trajectory of spatial development and advancement of the
monetary-financial system as joint historical process
 Nexus of hierarchies matters for financial resilience.
Outline
1. Money and the city: Ideas, institutions and
events
2. A tale of two hierarchies (hierarchy of cities,
hierarchy of money)
3. Rethinking the geography of money
4. Detroit’s place in U.S. monetary history
Money and the city:
Ideas, institutions and
events
Key hypotheses
1. The evolution of the urban spatial structure is the joint
result of the historical urbanization of capital (urban
hierarchy) and recurring financial instability (monetary
hierarchy), alternatingly emanating from the real sector or
the financial sector.
2. These interrelated processes govern spatial risk
distribution, financial regulation and government
intervention, leading to financial innovation, opening up
new financial frontiers.
3. In turn, this creates alternative avenues for the (sub)urbanization of capital, giving rise to new dynamics for the
evolution of urban form.
Ideas, institutions and events
• Ideas about the “nature of money” determine monetary
analysis:
– Historical representation of economy as system of circular flows
evolves with social imaginary.
– Common dichotomy across different economic paradigms: “real
sector” (production and consumption) and “monetary sector”
(money, credit and banking).
– Nature of real-monetary nexus as key distinction between schools
of economic thought.
• Institutions represent the socio-economic arrangements
that rest on and are influenced by specific ideas.
• Historical events give rise to new theoretical
insights/ideas, in turn re-shaping institutions.
Ideas, institutions and events
Two important ideas unified: The idea of modern money and finance
and the Jeffersonian ideal of the spatial arrangement of the metropolis.
Ideas, institutions and events
• Two misconceptions about money.
– Banks act simply as intermediaries, lending out the deposits that
savers place with them (“loanable funds theory”)
– Central bank determines the quantity of loans and by controlling the
quantity of central bank money (“money multiplier approach).
• What happens in reality:
– Lending creates deposits — broad money determination at the
aggregate level. Bank deposits are mostly created by commercial
banks themselves.
– Banks face limits lending (profitability and regulatory constraints).
– Money creation is also constrained by the behaviour of money
holders (households and businesses). Ultimate constraint on
money creation is monetary policy.
Money matters: Stocks and flows
“Capital represents itself in the form of a physical
landscape created in its own image, created as use values
to enhance the progressive accumulation of capital.”
– Harvey (1978): “The Urban Process under Capitalism: A Framework for Analysis,”
International Journal of Urban and Regional Research, 2(4): 100—131.
“To analyze how financial commitments affect the economy
it is necessary to look at economic units in terms of their
cash flows. The cash flow approach looks at all units – be
they households, corporations, state and municipal
governments, or even national governments – as if they
were banks.”
– Minsky (2008): Stabilizing and Unstable Economy, New York: McGraw-Hill, p 221.
PK Institutionalism and MMT
John R. Commons
(1862–1945)
Joseph A. Schumpeter
(1883–1950)
Wesley C. Mitchell
(1874–1948)
Alvin H.
Hansen (1887–
1975)
Morris A. Copeland
(1896–1989)
“Flow of
funds”
Walter Isard
(1919–2010)
August
Lösch
(1906–1945)
U. Michigan,
1930s
“Spatial price
waves, hierarchy
of money”
Post Keynesian Institutionalism:
“Spatial Non-Neutrality of Money”
Edgar M. Hoover,
Jr. (1907–?)
Harvard, early
1950s
John M.
Keynes (1883–
1946)
Hyman P.
Minsky (1919 –
1996)
“Financial
instability”
Kiel Institut für
Weltwirtschaft
, late 1920s
Wassily W.
Leontief (1906–
1999)
Schumpeter’s monetary theory
• Long gestation period with many trials and misadventures
– Das Wesen und der Hauptinhalt der theoretischen
Nationalökonomie (1908), attempts to overcome fissures of the
“Methodenstreit”
– Das Wesen des Geldes (1970)
• Standard approaches to monetary theory are missing:
– Determinants of money demand, money supply
– Money and real sector interaction, monetary policy
• Walrasian GE beginnings abandoned, later emphasis on
“institution of money”:
– Sociology of money, institutions for social accounting, Money
creation by banks
– Nature of money, theory of price level, theory of money process and
functions of the money market
Schumpeter’s monetary theory
“Event today, textbooks on Money, Currency and Banking are
more likely than not to begin with an analysis of a state of
things in which legal tender “money” is the only means of
paying and lending ... it may be more useful […] to look upon
capitalist finance as a clearings system that cancels claims
and debts and carries forward the differences – so that
“money” payments come in only as a special case without
any particularly fundamental importance.
In other words: practically and analytically, a credit theory of
money is possibly preferable to a monetary theory of credit.”
– Schumpeter (1954, p.717)
Circular flows: The Classics
Source: Denis (1904)
Circular flows: Proto-Keynesians
Source: Wagemann (1930)
Circular flows: Institutionalists
Source: Copeland (1952)
Circular flows: Marxists
Source: Harvey (1985)
Circular flows: DGSE Orthodoxy
Source: Del Negro et al. (2013)
Ideas, institutions and events
Money matters: Theories
Economic paradigm
Realmonetary
Origins of
sector
economic cycles
relationship
Nature of
crises
Spatial
consequences
Classics
Real sector
Neutral
Resources
Not considered
Marxism
Real sector
Non-neutral
Overaccumulation
Urbanization
(Post) Keynesianism
Both sectors
Non-neutral
Financial
instability
Not considered
Neoclassical (RBC)
Real sector
(Super)neutral
Exogenous
shocks
Not considered
Inflation
Not considered
None
Agglomeration
Monetarism
“New” urban economics, new
economic geography
Monetary sector Non-neutral
Real sector
Neutral
Source: Bieri (2014a)
Price level of financial assets
Money, credit (funding flows)
Price level of current output
Shadow
banking
Central bank
Gold, monetary base
Commercial banks
Deposits
Private sector, NDFIs
Securities
Hierarchy of money
Banking
Taxes
Goods, services
Households,
consumers
Firms,
producers
Government
Wages, salaries
Public
expenditures
Credit subsidies
Interest payments, savings (asset flows)
Financial sector
Households
Use
Source
Use
Source
Use
Source
Use
Source
Real transactions
Ifin
Sfin
Ih
Sh
If
Sf
Ig
Sg
Financial transactions
Afin
Lfin
Ah
Lh
Af
Lf
Ag
Lg
for each sector, Ii + Ai = Si + Li
Firms
Government
such that:
Surplus
Si - Ii = Ai - Li
: non-financial sources  net financial savings
Money outflow
Ai - Li > 0
Deficit
Li - Ai = Ii - Si
: financial sources  product expenditures
Money inflow
Li - Ai > 0
REGULATION
URBAN
HIERARCHY
Ideas, institutions and events
Colonial settlement,
("Isolierter Staat")
Emergent central place
("merchant republic")
Negligible regulation
Core-periphery contours,
emergent urban hierarchy
Increasing regulator, rise of fiscal federalism
First wave of suburbanisation,
city restructuring ("Streetcar
suburbs")
Economic growth and a new urban
form (“Rise of the monocentric city")
Strong (direct): Manager, progressive
regulatory state (Anti-trust)
Suburbanization
Spatial sorting and the
rise of the polycentric city
Strong (indirect 1): Partner, facilitator
Global cities (from "Edge
cities" to "Boomburbs")
Weak (direct): Deregulation,
“Washington Consensus”
Strong (indirect 2): "Too
big to fail“, re-articulation
of regulatory state
FINANCIAL
INNOVATION
Financialisation
Pre-1800s: Stock exchange, insurance
company, central bank
Mutual fund (1774, NL); Inflation-linked bond (1780, USA)
Modern mutual fund
(1924, USA)
Mortgage
Exchange-traded
Venture capital industry Leveraged buy-out
securitization
fund (1993, CA)
(1940s, USA)
(1955, USA)
(1970, USA)
Black-Scholes
Credit default
Hedge fund (1949, USA)
ATM (1967, UK)
option pricing
swap (1994, USA)
(1973, USA)
Algorithmic, highfrequency trading >50%
of all trades (2012)
MONETATRY
REGIME
Gold standard 1: Fixed
exchange rates, free banking
BANKING
DEVELOPMENT
Bimetallism
Stage 1: Deposit
taking only
Stage 2: Bank liabilities as means
of payment
Spatial and monetary hierarchy
BANKING REGULATION
Central Banking 1: First and
Second Bank of the United
States (1791-1836)
Free Banking (1836-1863)
Gold standard 2: Specie standard, fixed
exchange rates, central banking
Stage 3: Inter-bank lending,
collective credit expansion
National Currency Act (1863),
National Bank Act (1864)
Gold standard 3: Gold
exchange standard,
Interwar period
Pre-convertible
Bretton Woods
Stage 4: Central bank as "lender of last resort",
endogenous bank reserves
Federal Reserve Act
(1913)
McFadden Act
(1927)
Federal Home Loan
Bank Act of 1932
Banking Act of 1933
(Glass-Steagall)
Post-Bretton Woods 1:
Managed float
Convertible
Bretton Woods
Stage 5: Liability management
with banks seeking both lending
opportunities and deposits
Bank Holding Company Acts
(1956, 1970)
Bank Merger Acts
(1960, 1966)
Post-Bretton Woods 2:
Free floating
Stage 7: Central bank as
the "dealer of last resort",
quantitative easing and
"monetization" of fiscal
policy
Stage 6: Securitization, offbalance sheet credit creation
International
Competitive Equality
Banking Act (1978) Bank Act (1987)
Federal Credit
Union Act (1970)
Savings and Loan
Holding Company Act
(1968)
Depository Institutions
Deregulation and
Monetary Control Act
(1980)
Financial Services
Modernization Act (1999,
Gramm-Leach-Bliley)
Depository Institutions
Act (1982, Garn-St.
Germain)
Financial Institutions
Reform, Recovery
and Enforcement Act
(1989)
Home Mortgage
Disclosure Act
(1975)
Community
Reinvestment Act
(1977)
Financial Services
Regulatory Relief Act
(2006)
Interstate Banking and
Branching Efficiency Act
(1994, Riegle-Neil)
Wall Street Reform
and Consumer
Protection Act (2010,
Dodd-Frank)
Emergency
Economic
Stabilization Act
(2008)
American Recovery
and Reinvestment
Act (2009)
Federal Housing
Finance Regulatory
Reform Act (2008)
Ideas, institutions and events
Source: Bieri (2014)
Money matters: Stocks and flows
“Capital represents itself in the form of a physical
landscape created in its own image, created as use values
to enhance the progressive accumulation of capital.”
– Harvey (1978): “The Urban Process under Capitalism: A Framework for Analysis,”
International Journal of Urban and Regional Research, 2(4): 100—131.
“To analyze how financial commitments affect the economy
it is necessary to look at economic units in terms of their
cash flows. The cash flow approach looks at all units – be
they households, corporations, state and municipal
governments, or even national governments – as if they
were banks.”
– Minsky (2008): Stabilizing and Unstable Economy, New York: McGraw-Hill, p 221.
Form follows financialization
Source: Home Owners Loan Corporation (1935)
Form follows financialization
Source: Bunge’s “Fitzgerald: Detroit Geographical Expedition and Institute” (1971)
Form follows financialization
Regional flow of funds
Source: Isard (1960)
Regulatory-space dialectic
Source: Abel and Deitz (2010)
Regulatory-space dialectic
Source: Bieri (2014)
Regulatory-space dialectic
Notes: Metro area extrusions are proportional to total losses from FDIC-supervised depository
institutions as a percentage of metropolitan GDP. Area shading reflects the total number of failed
institutions per metro area (light grey: 1-5 failures, black: 20-59 failures). Source: Author’s calculations
from FDIC Historical Statistics on Banking and BEA data.
Regulatory-space dialectic
Regulatory-space dialectic
Notes: Metro area extrusions are proportional to cumulative borrowing by depository institutions via the
Federal Reserve’s Discount Window as a percentage of metropolitan GDP. Area shading reflects the
average loan-to-value ratio for banks (credit outstanding as share to total collateral pledged) per metro
area (ranging from light grey: 3-5% LTV to black: 70-85% LTV). Source: Author’s calculations from
Federal Reserve data on discount window lending and BEA data. Source: Author’s calculations FRB
micro data.
Regulatory-space dialectic
GSE loan sales by banks, 2006.
Private loan sales by NDFIs, 2006.
Notes: In panel (b), metro area extrusions are proportional the share of total loan sales by NDFIs – this
is the y-axis variable in panel (a). Area shading reflects the relative share of securitisation by GSEs (this
is the x-axis variable in panel (a) – ranging from dark grey: 15-20% to dark red: 60-70%). In panel (c),
extrusions are proportional to the volume of loan sales/securitisation by NDFIs as a percentage of MSA
GDP. Area shading reflects the relative share of private label securitisation by NDFIs (ranging from dark
grey: 40-50% to dark red: 95-99%). Source: Author’s calculations from HMDA microdata, BEA and
Census Bureau data.
Regulatory-space dialectic
Source: Pozsar et al.
(2013)
Regulatory-space dialectic
Source: IMF (2014)
A tale of two
hierarchies: The
hierarchy of cities and
hierarchy of money
A tale of two hierarchies
• Hierarchy of cities: Cities as “organisations”, positioned
within a spatial order of economic production.
• Hierarchy of money: All money is credit money and credit
is always and everywhere fundamentally hierarchical in
nature. Credit allocation as a core function of modern
states.
 Historical interaction between urban and monetary
hierarchy matters for distribution and evolution of
economic activity across space.
 Trajectory of spatial development and advancement of the
monetary-financial system as joint historical process (Bieri
2013).
Hierarchy of cities
• Cities as “organisations” within a spatial order of economic
production
– Diversity in size and scope from differences in scale economies
relative to per-capita demand.
– Small number of large cities and large number of small cities
– Place in hierarchy is changing over time, depending on relative
specialisation
Phase 1: Frontier
Phase 2: Plowback
Phase 3: Secondary
Growth
Source: Conzen (1975)
Urban hierarchy: Theories
• Path dependency vs. standard narrative
• Higher productivity occurs because
– large cities disproportionately attract both high- and lows-skilled
(“extreme-skill complementarity” of spatial sorting),
– large cities select more productive entrepreneurs and firms
– agglomeration economies (sunk cost, IRS)
• Urban efficiencies (“contrasts in agglomeration”) depend
on
– Numbers (such as city or industry size),
– Nature of urban interactions (“The whys and wherefores of urban
diversification” Chinitz 1961; Jacobs 1969)
Urban hierarchy: Laws of
motion
• Agglomeration economies differ in important ways
– localization economies attenuate rapidly across space
– industrial organization affects the benefits of agglomeration
• The microeconomic determinants of agglomeration
–
–
–
–
–
3 Marshallian transportation costs: “goods, people, ideas”
Input-output linkages (input sharing, product shipping costs)
Labor market pooling
Knowledge spillovers
Natural advantage (“first geography” vs. “second geography”)
• “Coagglomeration” matters
– General tendency of various industries to locate together,
– Clusters …
Hierarchy of money
• All money is credit money and credit is always and
everywhere fundamentally hierarchical in nature
– The modern monetary-financial system (MFS) is hierarchical in
finance and in power (“taxes drive money”, “lender/dealer of last
resort”).
– MFS is a hybrid where public liabilities (“outside money”, a net
asset to the private sector) and private liabilities (“inside money”)
– Spatial relationship between financial variables and institutional
functions matters for urban development (e.g. interest rates or
credit intermediation)
– Hierarchy of money shifts across economic cycle through three
phases (hedge finance, speculative finance and Ponzi schemes)
– Money and credit fluctuate between states of discipline and states
of elasticity (cf. Mehrling 2012).
Hierarchy of money
• Hierarchy of money:
Money


Credit
Gold
Currency
Deposits
Securities
• Hierarchy of balance sheets:
Central Bank
Banking System
Private Sector
Assets Liabilities Assets Liabilities Assets Liabilities
Gold
Currency Curreny Deposits Deposits Securities
Securities
Source: Adapted from Mehrling (2012)
Monetary hierarchy: Theories
• Two main approaches to monetary theory
• Money as a medium of exchange, unit of account and store
of value
– Money is a numéraire good, arising from portfolio preferences,
intermediation technologies and high-powered government money
– Monetary sector forms “veil” behind which “real economy” operates
• Money as a form of credit (“credit theory of money”)
– Promise to pay income at some future point.
– Debt claims to assured income flows provide liquidity which can be
bought or sold)
– Taxes-drive money view
Monetary hierarchy: Laws of
motion
• Business cycles across different economic paradigms:
– Marxian:
M – C – M’
– Keynesian:
Y = C + I + G + (X-M)
– Monetarist:
PY = MV (Quantity Theory)
– Flow of funds:
sources of funds = uses of funds (endogenous
money)
• Re-theorising money and finance within economic
geography
– Taking history and institutions seriously
– Theorizing spatial aspects of the monetary-financial system
Monetary hierarchy: Mechanics
• Business cycles across different economic paradigms:
– Marxian:
M – C – M’
– Keynesian:
Y = C + I + G + (X-M)
– Monetarist:
PY = MV (Quantity Theory)
– Flow of funds:
sources of funds = uses of funds (endogenous
money)
• Re-theorising money and finance within economic
geography
– Taking history and institutions seriously
– Theorizing spatial aspects of the monetary-financial system
Money matters
“[M]oney plays a part of its own and affects motives and decisions and
is, in short, one of the operative factors in the situation, so that the
course of events cannot be predicted, either in the long period or in the
short, without a knowledge of the behaviour of money between the first
state and the last.” – Keynes (1933, p.123)
“The essential problem is whether any macroeconomic theory that is
constructed upon a set of assumptions from which the proposition that
money and finance are neutral is derived can be a serious guide to
understanding our economy and to the development of policies for our
economy.” – Minsky (1993, p.77)
Money matters
“The supposed relationship between [economic quantities]
falls down because the variables are not constituted or
linked in a mechanistic way. It would be better to conceive
of the financial system not as a machine but as an
organism, which includes automatic reflexes, processes of
substitution and immune systems which frustrate
intervention and control.
Just as in the human body, successful remedial action is
possible, but it is more complex and difficult than a
mechanistic theory would suggest.”
Hodgson, G. (1993): “The Economy as an Organism — Not a Machine,” Futures, 25(3):
392—403.
Rethinking the
geography of money
Treatment of money in regional
analysis
• Mainstream urban and regional economics is fully
“neoclassical” (including NEG or “geographical
economics”)
• Economic geography is steeped Marxian political economy
(largely without M–C–M’ or MELT)
• A case of “Hamlet without the Prince”? Mostly, but there
are important exceptions:
– Regional differentials in the cost of credit (Lösch, 1954)
– Keynesian theory of regional financial markets (Dow, 1986)
– A Post Keynesian perspective on the relation between banking and
regional development (Chick and Dow, 1988)
Circular flows: Regional
perspectives
Source: Kircher (1962)
A tale of two hierarchies
Source: Kircher (1962)
Geographies of money
• Little “monetary content” of contemporary economic
geography, despite active research on financialisation
• Marxian and other classical approaches focus on
accumulation (“Hamlet without the prince”)
– Spatial re-switching of capital (Harvey’s “spatial fix”)
– Sheppard and Barnes’ (1990) The Capitalist Space Economy:
Geographical Analysis after Ricardo, Marx and Sraffa
• Re-theorise “real-financial linkages” by spatialising the Post
Keynesian approach to monetary theory
– Circular cumulative (spatial) causation and financial instability, not
accumulation (Kalecki & Kaldor meet Minsky)
– Inherent hierarchy of money matters for the hierarchy of spatial
development (Knapp & Hawtrey meet Lösch)
Towards a spatial “money
view”?
• Spatialisation of the hierarchies of money:
– Gold, currency, deposits and securities
– Balance sheets, market makers: Central bank, banks (small and
big), dealers and money funds
– Prices: Exchange rate, par, interest rate
• Spatial hierarchy of money is dynamic across the
economic cycle, expanding and contracting in quality
and quantity (cf. Mehrling 2011, 2012)
Detroit’s place in U.S.
monetary history
(1805 – present)
Detroit in U.S. monetary-financial
history
• Stereotype of land-capital dynamics: Detroit’s rise and
fall are largely driven by successive stages of monetaryfinancial evolution that enabled speculative real estate
development.
• Prototype of financial instability: Institutional origins of
financial instability and banking-led crises in Michigan
begin in 1830s (Free Banking). Detroit is at the epicenter of
1933 banking crisis; municipal bankruptcy precedent in
2013.
• Archetype of frontier finance; As the financial frontier
moves across time and space, different “zones of
exclusion” emerge (mortgage speculation, large scale
vacancies, financial illiteracy, underbanked sections of the
population).
“Frontier Finance”: 1805–1815
• After great fire of 1805, the Bank of Detroit begins, without
any congressional authorisation.
• Gov. Hull and Woodward leave for Washington in 1805 to
meet with Congress to craft the legislation to incorporate
the City, and authorise the Woodward Plan and banking.
• Bank of Detroit is a true pioneer and has no competitor
west of the Alleghenies.
• Paper currency swindle leads to closing of several Detroit
banks. Law passed that prohibited unauthorized banking.
• First Bank of the United States’ charter expires in 1811.
End of first era of centralised frontier finance.
“Frontier Finance”: 1816–1845
• Reorganisation of Northwest Territory opens up the
western frontier to development ($1.5/acre)
– Huge influx of population and land speculation. Capital shortage.
– Michigan is deemed to become the wealthiest state in the Union.
• Bank of Michigan chartered in 1817 with primarily east
coast Whig money and General Lewis Cass. Michigan
State Bank founded in 1835 by John R. Williams with the
help of Albany capitalists.
• Second Bank of the United States is chartered from 1816
to 1836. End of second episode of central banking
• Michigan pioneers free banking legislation in 1837, banks
jumps dramatically. Other states follow and adopt “Free
Banking Acts”
“Frontier Finance”: 1933
• The deepest banking crisis of the Great Depression
touched off by failure of two Detroit banks in early 1933
(Guardian National Bank of Commerce and the First
National Bank in Detroit among five largest national bank
casualties).
• Henry Ford threatens to pull funds out of Michigan banks;
Bank holiday in Michigan to prevent bank run, followed by
national bank holiday shortly thereafter (Emergency
Banking Act of 1933).
• Reconstruction Finance Corporation and Alfred Sloan (GM)
create the National Bank of Detroit. Federal funding and
assumed assets of the two failed Detroit banks (First
National Bank of Detroit and the Guardian National Bank of
Commerce)
“Frontier Finance”: 2000–date
• With Wall Street’s help, Detroit under the Kilpatrick
Administration borrows $1.44 billion to restructure pension
fund debt. ($2.8 billion over the next 22 years; represents
nearly one-fifth of the city’s debt)
• Kresge Foundation and other industrio-philantropic
interests emerge as key players in pre-crash Detroit real
estate market, looking to invest in Downtown (waterfront)
and Midtown areas, the City puts out a plan to shrink the
city.
• Dan Gilbert’s Quicken Loan emerges as one of the largest
nondepository mortgage credit intermediaries of the Great
Housing Boom, with large presence in the US subprime
markets.
“Frontier Finance”: 2000–date
• Real estate crash and new urban renewal
– Kresges pull funding from smaller projects and invest in Detroit
Future City Plan.
– Gilbert emerges the new “Charles Trowbridge (1800-1883)”, a key
frontier financier, and with a visionary financial commitment to
downtown and Midtown
• Financialisation, bankruptcy and post-crisis rebirth
– One of the country’s largest-ever urban farming projects gets green
light from Detroit and state officials. (Hantz Farms, 140 acres of
land on Detroit’s east side, owned by Hantz Group, primarily a
financial services company)
– Developers propose to buy Belle Isle
“Frontier Finance”
• Three interrelated themes emerge:
– Co-movement of capital flows and changes in the urban functional
hierarchy
– Socio-spatial evolution of the frontier concept
– Michigan’s “money men” and Detroit’s “cathedrals of finance”
“Frontier Finance”
• Three interrelated themes emerge:
– Co-movement of capital flows and changes in the urban functional
hierarchy
– Socio-spatial evolution of the frontier concept
– Michigan’s “money men” and Detroit’s “cathedrals of finance”
“Money interest” vs. “Public
interest”
Detroit is at the epicenter of cyclical instability driven by the
spatio-temporal evolution of the U.S. monetary-financial
system and its urban hierarchy.
– “Proto-Central Banking” (1795 – 1815)
– “The Great Banking Experiment” (1816 – 1845)
– “The Great Banking Crash” (1933)
– “The Securitisation Bubble” (2000– ) and the post-crisis normal
 Central tension between “money interest” and “public
interest” as a key theme for the last two centuries of
Detroit’s economic history
REFERENCES – I
Abel, Jason R. and Deitz, Richard. 2010. “Bypassing the Bust: The Stability of Upstate New York’s Housing Markets during the Recession,”
FRBNY Current Issues in Economics and Finance, 16(3): 1–9.
Adrian, Tobias, and Hyun Song Shin. 2010. “The Changing Nature of Financial Intermediation and the Financial Crisis of 2007–09.” Annual
Review of Economics 2(1): 603–18.
Bieri, David S. 2009. “Financial Stability, the Basel Process and the New Geography of Regulation.” Cambridge Journal of Regions,
Economy and Society 2(2): 303-331.
Bieri, David S. 2013. “Form Follows Function: On the Relationship between Real Estate Finance and Urban Spatial Structure.”
CriticalProductive 2(1): 7–18.
Bieri, David S. 2014. “Financial Stability Rearticulated: Institutional Reform, Post-Crisis Governance, and the New Regulatory Landscape in
the United States ,” in Iglesias-Rodrígues, P. (Ed.) Building Responsive and Responsible Regulators in the Aftermath of the Financial
Crisis, Cambridge, Intersentia Publishers.
Bunge William Wheeler, Jr. Fitzgerald: Geography of a Revolution. 2nd ed. Athens, GA: University of Georgia Press.
Conzen, Michael P. 1975. “Capital Flows and the Developing Urban Hierarchy: State Bank Capital in Wisconsin, 1854–1895” Economic
Geography 51(4): 321–338.
Copeland, Morris A. 1952. A Study of Moneyflows in the United States. Cambridge, MA: National Bureau of Economic Research.
Denis, Hector. 1904. Histoire Des Systèmes Économiques et Socialistes. Paris: V. Giard & E. Briére.
Diamond, Douglas W. and Dybvig, Philip H. 1983. “Bank Runs, Deposit Insurance, and Liquidity,” Journal of Political Economy, 91(3): 401–
419.
Dillard, Dudley. 1980. “A Monetary Theory of Production: Keynes and the Institutionalists,” Journal of Economic Issues,14(2): 255–272.
Dillard, Dudley. 1987. “Money as an Institution of Capitalism ,”Journal of Economic Issues, 21(4):1623–1647.
Föhl, Carl. 1937.Geldschöpfung und Wirtschaftskreislauf. Munich: Duncker und Humblot.
Harvey, David. 1985. “The Urbanization of Capital: Studies in the History and Theory of Capitalist Urbanization.” In Baltimore: John Hopkins
University Press, 1–31.
Ingham, Geoffrey. K., Kain, John F. and Ginn, J. Royce. 1972. The Detroit Prototype of the NBER Urban Simulation Model, New York:
Columbia University Press.
Isard, Walter. 1960. Methods of Regional Analysis. Cambridge, MA: MIT Press.
Jevons, W Stanley. 1884. Investigations in Currency and Finance. London: MacMillan and Co.
Kiyotaki, Nobuhiro and Moore, John. 1997. “Credit Cycles,” Journal of Political Economy, 105(2): 211–248.
REFERENCES – II
Kim, Sukkoo. 2007. “Changes in the Nature of Urban Spatial Structure in the United States, 1890–2000,” Journal of Regional Science, 47(3):
273–287
Kircher, Harry B. 1962. “The Geography of Financial Agglomeration in the United States.” Ph.D. Dissertation, Clark University.
Labasse, Jean. 1974. L'Éspace Financier: Analyse Géographique. Paris: Armand Colin.
Lefebvre, Jean-François. 1970. La Révolution Urbaine. Paris: Gallimard.
Lösch, August. 1940. Die räumliche Ordnung der Wirtschaft: Eine Untersuchung über Standort, Wirtschaftsgebiete und internationalen
Handel . Jena: Gustav Fischer.
Lösch, August. 1940. Geographie des Zinses. Die Bank, 33:24–28.
Lösch, August. 1941. “Die Lehre vom Transfer – neu gefaßt.” in von Zwiedineck-Sündenhorst, O. and Albrecht, G. (Eds.) Abhandlungen
Jahrbücher für Nationalökonomie und Statistik, Jena: Gustav Fischer, Band 154: 385–402.
Lösch, August. 1949. “Theorie der Währung: Ein Fragment,“ Weltwirtschaftliches Archiv, 62: 35–88.
Lösch, August. 1954. The Economics of Location, New Haven: Yale University Press.
Mehrling, Perry G. 1997. The Money Interest and the Public Interest: American Monetary Thought, 1920–1970 , Cambridge, MA: Harvard
University Press.
Mehrling, Perry G. 2011. The New Lombard Street: How the Fed Became the Dealer of Last Resort. Princeton University Press.
Mehrling, Perry G. 2012. “The Inherent Hierarchy of Money”, Mimeograph, Barnard College, Columbia University.
Minsky, Hyman P. 1992. “Taking Schumpeter's Methodology Seriously” in Scherer, F. M. & Perlman, M. (Eds.) Entrepreneurship,
Technological Innovation, and Economic Growth, Ann Arbor: University of Michigan Press, 363--370.
Minsky, Hyman P. 1992. “On the Non-Neutrality of Money,” Federal Reserve Bank of New York Quarterly Review 18(1): 77–82.
Minsky, Hyman P. 2008. Stabilizing an Unstable Economy. New York: McGraw Hill.
Pozsar, Zoltan, Tobias Adrian, Adam Ashcraft, and Hayley Boesky. 2013. “Shadow Banking.” Federal Reserve Bank of New York Economic
Policy Review 19(4): 1–17.
Schumpeter, Joseph A. 1954. History of Economic Analysis, New York: Oxford University Press.
Studenski, Paul. 1958. The Income of Nations: Theory, Measurement, and Analysis Past and Present. New York: New York University Press.
Thompson, G F. 1998. “Encountering Economics and Accounting: Some Skirmishes and Engagements.” Accounting, Organizations and
Society 23(3): 283–323.
Tobin, James. 1958. “Liquidity Preference as Behavior Towards Risk,” Review of Economic Studies, 25(3): 65–86.
Wagemann, Ernst F. 1930. Economic Rhythm: A Theory of Business Cycles. 1st ed. New York, NY: McGraw Hill.
Wagemann, Ernst F. 1940. Wo Kommt Das Viele Geld Her? Geldschöpfung Und Finanzlenkung Im Kriege. Düsseldorf: Völkischer Verlag
GmbH.
UPCOMING LUNCH
DISCUSSION
April 16th, 2015 12:00-1:30 PM
Resilient Freight Networks & Regulatory
Spaces
by
Marc Fialkoff
PhD Student, PGG
GFURR Ste. 312 – Kent Square