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Free Banking and Monetary Reform

Southern Economic Journal, 1990

... S50 Paulo Cambridge University Press The Edinburgh Building, Cambridge CB2 2RU, UK Published ... more

Daniel Carey and Christopher J. Finlay, eds., The Empire of Credit: The Financial Revolution in Britain, Ireland, and America, 1688–1815 (Dublin: Irish Academic Press, 2011), pp. 272, $74.95. ISBN 978-0-71653-415-0

Journal of the history of economic thought, Mar 1, 2014

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The Humean and Smithian Traditions in Monetary Theory

Palgrave Studies in the History of Economic Thought, 2021

Ralph George Hawtrey

The Elgar Companion to John Maynard Keynes, 2019

Free Banking and Monetary Reform: Preface

Fiat Money, Cryptocurrencies, and the Pure Theory of Money

SSRN Electronic Journal, 2020

This paper attempts to account for the rising value of cryptocurrencies using basic concepts of m... more This paper attempts to account for the rising value of cryptocurrencies using basic concepts of monetary theory. A positive value of fiat money is itself problematic inasmuch as that value apparently depends entirely on its expected resale value. A current value entirely dependent on expected future resale value seems inconsistent with backward induction. While fiat money can avoid the backward-induction problem if it is made acceptable in payment of taxes, acceptability for tax payments is unavailable to cryptocurrencies. Is the rising value of bitcoin and other cryptocurrencies a bubble? The paper argues that network effects may be an alternative mechanism for avoiding the logic of backward induction. Because users of any good subject to substantial network effects incur costs by switching to an incompatible alternative to the good currently used, users of a bitcoin for certain transactions may be locked into continued use of bitcoin despite an expectation that its future value will eventually go to zero. Thus, even if bitcoin and other cryptocurrencies are bubble phenomena, network effects may lock existing users of bitcoin into continued use of bitcoin for those transactions for which bitcoins provide superior transactional services to those provided by conventional currencies. Nevertheless, the prospects for bitcoin’s expansion beyond its current niche uses are dim, because its architecture implies that a significant expansion in the demand for its transactional services would lead to rapid appreciation that is incompatible with service as a medium of exchange.

Review of Seigniorage: On the Revenue from the Creation of Money by Jens Reich

SSRN Electronic Journal, 2019

This review provides a brief summary description of the book and its eight chapters which review ... more This review provides a brief summary description of the book and its eight chapters which review the history of and the history of thought about seigniorage. After the first two introductory chapters, the next four chapters analyze the conditions for optimal seigniorage for three ideal types of currency (commodity, fiat, and credit) and for mixed systems of commodity and credit currencies and fiat and credit currencies. The final chapters discuss how the analysis might be extended to consider optimal seigniorage not in isolation but as part of an integrated fiscal system and how the place of the theory of seigniorage within monetary theory. Despite the valuable contribution Reich makes in providing a detailed overview of the literature on seigniorage and to the analysis of seigniorage, the review notes several topics on which Reich’s analysis of seigniorage is incomplete or insufficiently nuanced.

Say’s Law and the Classical Theory of Depressions

SSRN Electronic Journal, 2019

Say's Law occupies a prominent, but equivocal, position in the history of economics, having been ... more Say's Law occupies a prominent, but equivocal, position in the history of economics, having been the object of repeated controversies about its meaning and significance since it was first propounded early in the nineteenth century. It has been variously defined, and arguments about its meaning and validity have not reached consensus about what was being attacked or defended. This paper proposes a unifying interpretation of Say's Law based on the idea that the monetary sector of an economy with a competitively supplied money involves at least two distinct markets not just one. Thus, contrary to the Lange-Patinkin interpretation of Say's Law, an excess supply or demand for money does not necessarily imply an excess supply or demand for goods in a Walrasian GE model. Beyond modifying the standard interpretation of the inconsistency between Say's Law and a monetary economy, the paper challenges another standard interpretation of Say's Law as being empirically refuted by the existence of lapses from full employment and economic depressions. Under the alternative interpretation, originally suggested by Clower and Leijonhufvud and by Hutt, Say's Law provides a theory whereby disequilibrium in one market, causing the amount actually supplied to fall short of what had been planned to be supplied, reduces demand in other markets, initiating a cumulative process of shrinking demand and supply. This cumulative process of contracting supply is analogous to the Keynesian multiplier whereby a reduction in demand initiates a cumulative process of declining demand. Finally, it is shown that in a temporary-equilibrium context, Walras's Law (and a fortiori Say' Law) may be violated.

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The Logic of Market Definition

SSRN Electronic Journal, 2018

Despite all the commentary that the topic has attracted in recent years, confusion still surround... more Despite all the commentary that the topic has attracted in recent years, confusion still surrounds the proper definition of relevant markets in antitrust. This paper addresses that confusion and attempts to explain the underlying logic of market definition. It does so largely by way of exclusion. The paper identifies and explains three common errors in the way that courts and advocates approach market definition. The first error is what we call the natural market fallacy. This is the mistake of assuming that relevant markets are identifiable constructs and features of competition in the world, rather than the purely conceptual analytic devices that they actually are. The second error is what we call the independent market fallacy. This is the failure to appreciate that relevant markets do not exist independent of any theory of harm but must always be customized to reflect the specific details of a given theory of harm. The third error is what we call the single market fallacy. This is the tendency to seek some single, best relevant market, when in reality there will typically be many relevant markets that could be helpfully and appropriately drawn to aid in the analysis of a given case or investigation. In the course of identifying and debunking these fallacies, the paper clarifies the appropriate framework for understanding and conducting market definition.

Can competitive banking be safe and stable?

Free Banking and Monetary Reform

The Sraffa-Hayek Debate on the Natural Rate of Interest

SSRN Electronic Journal, 2013

While Prices and Production established Hayek's reputation as a business-cycle theorist, Sraffa's... more While Prices and Production established Hayek's reputation as a business-cycle theorist, Sraffa's 1932 review was instrumental in turning opinion against Hayek. A key argument of Sraffa's was that Hayek's idea of a natural rate of interest, reflecting only real relationships, was incoherent, because, without money, there is a multiplicity of commodity own rates, none of which can be identified as the natural rate. Although Hayek failed to respond effectively to Sraffa, Ludwig Lachmann later observed that Keynes's treatment of own rates in the General Theory undercut Sraffa. Own rates cannot deviate from each other by more than expected price appreciation plus the cost of storage and the service flow provided by the commodity, anticipated asset yields being equalized in equilibrium. Thus, on Keynes's analysis, the natural rate is welldefined. However, Keynes's own-rate analysis only partially rehabilitates Hayek. There being no inflation rate under barter, a unique money natural rate cannot be specified.

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Thomas Tooke: Pioneer of Monetary Theory, by Arie Arnon. University of Michigan Press, Ann Arbor, 1990. Pp. viii, 200. ISBN 0-472-10199-4

Journal of the History of Economic Thought, 1992

Classical Monetary Theory and the Quantity Theory

History of Political Economy, 2000

Some years ago, I proposed (Glasner 1985) what then seemed to be a novel interpretation of classi... more Some years ago, I proposed (Glasner 1985) what then seemed to be a novel interpretation of classical monetary theory. Relying on work by Laidler ([1972] 1975), Thompson (1974), Frenkel and Johnson (1976), Girton and Roper (1978), and McCloskey and Zecher (1976), I suggested that notwithstanding the conventional identification of classical monetary theory with the quantity theory of money-and a rather crude version of the quantity theory, at that-many leading classical theorists espoused a monetary theory very different from the quantity theory. The difference between the two theories, I argued, is that the quantity theory treats the stock of money as an exogenous variable to which prices adjust, whereas the other (antiquantity-theoretic) theory treats the absolute level of prices, fixed by the convertibility of money into a real commodity, as an exogenous variable to which the stock of money adjusts. I further argued that much of the history of classical monetary theory could be understood as a dialectic between these two clashing theories. Until the early 1970s the notion that the quantity theory was the dominant, if not the only, monetary paradigm in classical economics

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Review of the Empire of Credit: The Financial Revolution in Britain, Ireland, and America, 1688-1715

Social Science Research Network, 2013

This paper reviews a collection of essays relating to various aspects of the financial revolution... more This paper reviews a collection of essays relating to various aspects of the financial revolution in Britain starting with the creation of the Bank of England in the late seventeenth century and ending with the defeat of Napoleon in 1815, a period in which Britain unexpectedly became the dominant power in Europe and acquired an international empire. The volume under review explores some of the historical and intellectual connections between the financial revolution and Britain's military ascendancy

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Robert Lucas and the Pretense of Science

SSRN Electronic Journal

Jens Reich, Seigniorage: On the Revenue from the Creation of Money (New York: Springer International Publishing, 2017), pp. 148, $109.99 (hardcover). ISBN: 9783319631233

Journal of the History of Economic Thought, 2020

Rules versus discretion in monetary policy historically contemplated

Journal of Macroeconomics, 2017

Monetary policy rules are attempts to cope with the implications of having a medium of exchange w... more Monetary policy rules are attempts to cope with the implications of having a medium of exchange whose value exceeds its cost of production. Two classes of monetary rules can be identified: 1) price rules that target the value of money in terms of a real commodity, e.g., gold, or in terms of some index of prices, and 2) quantity rules that target the quantity of money in circulation. Historically, price rules, e.g. the gold standard, have predominated, but the Bank Charter Act of 1844 imposed a quantity rule as an adjunct to the gold standard, because the gold standard had performed unsatisfactorily after being restored in Britain at the close of the Napoleonic Wars. A quantity rule was not proposed independently of a price rule until Henry Simons proposed a constant money supply consisting of government-issued fiat currency and deposits issued by banks operating on a 100-percent reserve basis. Simons argued that such a plan would be ideal if it could be implemented because it would deprive the monetary authority of any discretionary decisionmaking power. Nevertheless, Simons concluded that such a plan was impractical and supported a price rule to stabilized the price level. Simons"s student Milton Friedman revived Simons"s argument against discretion and modified Simons plan for 100-percent reserve banking and a constant money supply into his k-percent rule for monetary growth. This paper examines the doctrinal and ideological origins and background that lay behind the rules versus discretion distinction.

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How " Natural " Is the Government's Monopoly over Money?

The quantity theory of money

Free Banking and Monetary Reform

Carey Daniel and Finlay Christopher J., eds., The Empire of Credit: The Financial Revolution in Britain, Ireland, and America, 1688–1815 (Dublin: Irish Academic Press, 2011), pp. 272, $74.95. ISBN 978-0-71653-415-0

Journal of the History of Economic Thought, 2014

historians of economics today? Indeed, who any longer debates the major interpretations of the hi... more historians of economics today? Indeed, who any longer debates the major interpretations of the history of economics in our contemporary small-scale culture of journal publication? Do historians today even recognize that historiographic form that once made an issue of how the history of economics is to be interpreted, such as occupied such great historians as Edwin Cannan, Erich Roll, Henry William Spiegel, Warren Samuels, and so many others of two generations past?

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