The Evolution of a Free Banking System

Selgin, George; White, Lawrence H.

doi:10.1111/j.1465-7295.1987.tb00752.x

Cited by 88 publications

(25 citation statements)

References 20 publications

(4 reference statements)

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“…Members of the MFB school attribute most contemporary monetary problems directly to government interference in the financial marketplace, either by regulation, deposit insurance or the establishment of state-run central banks; they make corresponding claims 6 for the superiority of a laissez-faire system. A selective sampling of the literature would include contributions by Dowd (1989Dowd ( , 1993, Glasner (1989), Sechrest (1993), Selgin (1988) and White (1984aWhite ( , 1989.…”

Section: Alternative Theories Of Moneymentioning

confidence: 99%

The Structure of Financial Markets and the ‘First Principles’ of Monetary Economics

Dow

Smithin

1999

Scottish J Political Eco

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There has been a significant degree of financial restructuring over the last few decades, which has prompted a rethinking of the first principles of monetary economics. The focus here is on how four specifications of these principles address the question of the desirability of central banks. The case is made for one approach, which advocates central banking as being integral to the logic of credit relations, which in turn are at the heart of monetary systems. It is argued that monetary history demonstrates that monetary standards and central banking have indeed tended to be the outcome of competition in the financial sector. In the past several years a substantial literature has arisen discussing the merits of laissez-faire in the financial services industry and the provision of payments systems. Several comprehensive surveys are available, as in Cowen and Kroszner (1994), Dowd (1993), Selgin and White (1994) and, from a more critical perspective, Smithin (1994) and Trautwein (1993). A number of convergent influences seem to have been responsible for the re-emergence of this debate in the current era.These would include, first, a straightforward extension to the monetary arena of the increasingly popular case for laissez-faire in other areas (Dowd, forthcoming). Second, the rapid pace of technical change, including the computerisation of banking systems and financial markets, seems finally to make possible the substitution of 'sophisticated accounting systems of exchange ' (McCallum, 1985) for conventional monetary systems. For the first time, the Walrasian barter-exchange economy is apparently a potential reality rather than a convenient theoretical abstraction (Smithin, 1994).Finally, theory has developed in response to perceptions of poor performance of existing centralbank-dominated systems (Buchanan and Fand, 1993).One key question which has been widely debated is whether, in some hypothetical deregulated and financially-innovated system, there would be any need for an institution analogous to a central bank, which would be capable of conducting monetary policy. Many authors, particularly in the new monetary economics (NME) and modern free banking (MFB) traditions, think not.Another important issue which has received attention is the feasibility and desirability of separating the traditional functions of money, such as medium of exchange and unit of account. A number of scenarios has been put forward in which a radical separation of the monetary functions is both feasible and economically efficient. This paper puts forward arguments against both of these positions, on the basis of a different monetary-theoretic foundation. According to this alternative perspective, money is essential to the economic process, and 'moneyness' has some of the characteristics of a public good. The practical operation of production and exchange in capitalist economies requires that there be a basic monetary asset which unamibiguously represents the standard of value and is universally acceptable 2 in the ultimate discharge of d...

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Section: Alternative Theories Of Moneymentioning

confidence: 99%

The Structure of Financial Markets and the ‘First Principles’ of Monetary Economics

Dow

Smithin

1999

Scottish J Political Eco

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“…Bernholz (2003) shows that in general, inflation has been lowest in metallic regimes, and highest in fiat money regimes. Selgin and White (1987) give an even less optimistic view of the effects of fiat money.…”

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confidence: 99%

The anatomy of government failure

Keech

Munger

2015

Public Choice

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Government failure is a much bigger problem than its contemporary treatment implies. Setting aside natural disasters, most of the great catastrophes of human history have been government failures of one sort or another. We argue that many so-called market failures are government failures because government defines the institutions in which markets succeed or fail. The concept of government failure has been trapped in the cocoon of the theory of perfect markets. Narrowly defined deviations from market perfection have been designated market failures, for which government corrections may or may not really be a solution. Government failure in the contemporary context means failing to resolve a classic market failure. We propose an alternative approach for evaluating whether government fails: the Pareto standard. If an available Pareto improvement is not chosen, or is not implemented, that is a government failure. We organize government failure into two types: substantive and procedural. Substantive failures include the inability or unwillingness to maintain order, to maintain sound fiscal and monetary policies, and to reduce risks of transaction costs, which we classify as corruption, agency and rent-seeking. Procedural failures are inadequacies of available social choice mechanisms, causing collective decisions to be arbitrary, capricious, or manipuated. We conclude with some reflections on human rationality and the implications of behavioral economics.

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“…Another example of market generated money is the use of scrip in mining communities, and there are also the 18 th and 19 th century episodes of free banking in Scotland and the U.S. when private banks issued notes that were redeemable for commodity money (gold). Selgin and White (1987) provide an excellent history of the role of competitive markets in endogenously shaping the evolution of money. However, I disagree with their characterization of free banking systems which they believe to be stable.…”

Section: Appendix: Mmt's Misunderstanding Of the Origins Of Moneymentioning

confidence: 99%

The Critics of Modern Money Theory (MMT) are Right

Palley

2014

Review of Political Economy

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract Eric Tymoigne and Randall Wray's (T&W, 2013) defense of MMT leaves the MMT emperor even more naked than before (excuse the Yogi Berraism). The criticism of MMT is not that it has produced nothing new. The criticism is that MMT is a mix of old and new, the old is correct and well understood, while the new is substantially wrong. Among many failings, T&W fail to provide an explanation of how MMT generates full employment with price stability; lack a credible theory of inflation; and fail to justify the claim that the natural rate of interest is zero. MMT currently has appeal because it is a policy polemic for depressed times. That makes for good politics but, unfortunately, MMT's policy claims are based on unsubstantiated economics. Terms of use: Documents inKeywords: modern money theory, money financed budget deficits, fiscal policy.JEL classification: E00, E02, E10, E12, E24, E40, E58, E62, E63. AbstractEric Tymoigne and Randall Wray's (T&W, 2013) defense of MMT leaves the MMT emperor even more naked than before (excuse the Yogi Berra-ism). The criticism of MMT is not that it has produced nothing new. The criticism is that MMT is a mix of old and new, the old is correct and well understood, while the new is substantially wrong. Among many failings, T&W fail to provide an explanation of how MMT generates full employment with price stability; lack a credible theory of inflation; and fail to justify the claim that the natural rate of interest is zero. MMT currently has appeal because it is a policy polemic for depressed times. That makes for good politics but, unfortunately, MMT's policy claims are based on unsubstantiated economics.

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The Evolution of a Free Banking System

Cited by 88 publications

References 20 publications

The Structure of Financial Markets and the ‘First Principles’ of Monetary Economics

The Structure of Financial Markets and the ‘First Principles’ of Monetary Economics

The anatomy of government failure

The Critics of Modern Money Theory (MMT) are Right

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