Karl Brunner ( BRUUN-ər, German: [karl ˈbrʊnər]; 16 February 1916 – 9 May 1989) was a Swiss economist.
Biography Karl Brunner was born in Zürich on 16 February 1916. He studied economics at the University of Zürich from 1934 to 1937, and at the London School of Economics from 1937 to 1938, before returning to the University of Zürich, where he received a doctorate in 1943. He served briefly as an economist at the Swiss National Bank, and as a lecturer and research assistant at the University of St. Gallen. He left Switzerland in 1949 to take up a position as a visiting fellow at the Cowles Commission, then based at the University of Chicago. After a two-year fellowship, Brunner moved to Los Angeles in 1951 to begin an academic career at the University of California, Los Angeles, where, in 1961, he was appointed a full professor. In 1966, he was appointed a professor at Ohio State University, before moving to the University of Rochester in 1971. In the 1970s, Brunner frequently returned to Europe, where he accepted a professorship at the University of Konstanz in Germany (1969–1973) and subsequently at the University of Bern in Switzerland (1974–1985). In 1979, Brunner was named the Fred H. Gowen Professor of Economics at the University of Rochester, a position he held until his death on 9 May 1989. Over the course of 43 years, Karl Brunner wrote 87 journal articles and 4 books, edited or co-edited 36 volumes, contributed 71 articles to books, volumes, conferences and Congressional hearings, and left behind 12 unpublished papers. He founded two leading academic journals, the Journal of Money, Credit, and Banking (in 1969) and the Journal of Monetary Economics (in 1973). He also organised the Konstanz, Interlaken and Carnegie-Rochester meetings (with Allan Meltzer), and co-founded the Shadow Open Market Committee (in 1973, again with Meltzer). To commemorate the 100th anniversary of his birthday, the Swiss National Bank started the Karl Brunner Distinguished Lecture Series in 2016. The first lecture was given by Ken Rogoff in Zürich.
Monetarism In 1968, Brunner introduced the term monetarism into the mainstream vocabulary of economics. Fundamentally, Brunner conceived monetarism as the application of relative-price theory to the analysis of aggregate phenomena. In his interview with Arjo Klamer, he notably claimed that: "the basic tenet of monetarism is the reassertion of the relevance of price theory to understand what happens in aggregate economics. Our fundamental point is that price theory is a crucial paradigm – as a matter of fact, the only paradigm – that economists have" (Klamer 1984, p. 183). This particular conception of monetarism seems closely related to Brunner’s experience at UCLA: "Most distressing was moreover the encounter with a group of economists systematically applying economic analysis (i.e. price theory) to social problems of our world. The resulting confusions yielded a fertile ground for the right environment, and UCLA at the beginning of the 1950s was for me the right place. The permanent discussion with a subtle mind (Armen A. Alchian), the impact of a lucid philosopher of science (Reichenbach), and the good fortune of questioning and determined students (Allan H. Meltzer, Tibor Fabian, later on Jerry Jordan and others) dispersed the intellectual fogs and gradually structured my thinking about economics and its role in our endeavour to understand the world" (Brunner 1980, p. 403). Similarly, to the question "When did you become a monetarist?", Brunner answered: "I find it actually quite interesting in retrospect to retrace the question in my discussions with Alchian" (Klamer 1984, p. 182). More specifically, Brunner considered that "the major propositions characterizing the monetarist view can be organized into four groups. These groups bear on descriptions of the transmission mechanism, the dynamic properties of the private sector, the dominance and nature of the monetary impulses and the separation of aggregate and allocative forces" (Brunner 1970, p. 2).
The transmission of monetary policy In the above quotation, as well as in other accounts of the main propositions characterizing monetarism, Karl Brunner systematically mentioned the transmission mechanism of monetary policy first. According to Brunner and Allan Meltzer (1976), a monetarist transmission mechanism is such that "changes in money modify relative prices and initiate a process of substitution that spreads to the markets for existing capital securities, loans and current output" (p. 97). The central role played by relative-price movements led Brunner to use the terms 'transmission process' and 'relative-price process' interchangeably. He actually perceived the transmission mechanism as "a suitable application of relative price theory" to explain output and employment fluctuations (Brunner 1968, p. 18). More precisely, the transmission mechanism of monetary policy considered by Brunner and Meltzer relies on the relative behavior of two prices. First, the price of existing real assets, denoted by P, which is actually the price of existing real capital. Second, the price of output, denoted by p, which is the price of the item used both for building new real capital and for consumption purposes. Moreover, Brunner and Meltzer assumed that the costs of acquiring information are smaller in the assets markets than in the output market. As a result, the speed of adjustment of P in response to shocks is higher than that of p. An increase in the growth rate of money supply thus implies a rise in the ratio of P to p. This means that the price of new capital has fallen relative to the price of existing capital, stimulating private investment (i.e. the production of new capital). Furthermore, a rise in the P to p ratio also generates a positive wealth effect and then an increase in private consumption. Hence, an expansionary monetary policy raises each component of private aggregate spending through an increase in P/p. It is worth noting that this mechanism is close to the one set out by James Tobin (the so-called Tobin’s Q) in 1969.
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