Free Banking

Durante el siglo XIX funcionó en Chile un sistema de "banca libre", que permitía que fueran las propios bancos los responsables de emitir los billetes que necesitaba la pequeña economía local, en su etapa de modernización capitalista . Este sistema monetario, en que la oferta monetaria era definida por privados que se enfrentaban en mercados competitivos, operó en forma fluida durante varias décadas, en un contexto general de baja inflación, de normalidad institucional y de progreso económico. ¿Cómo funcionaba este sistema bancario y monetario ultraliberal, en la etapa anterior a la creación del Banco Central? Este artículo estudia los principales elementos y mecanismos que caracterizaron a este sistema...

A central pillar of contemporary conspiracy theories is the notion that all modern wars were secretely plotted and instigated by the Federal Reserve Bank. In these circles, the founding of the so called "Creature from Jekyll Island" in 1913 is considered a coup d'état of the international haute finance which enabled the U.S.'s entry into World War One a year later and the building of the American Empire. Also right-wing libertarians critical of U.S. foreign interventions like the U.S. Republican presidential candidate Ron Paul have led a long struggle to "End the Fed" (as his 2009 book is called), and signs to "End the Fed" could also be seen at demonstrations of the international Occupy movement leading to heated debates and confrontations. Against these conspiracy theories and drawing on key American historians' debates, this paper scrutinizes the actual historical origins of the 1913 Federal Reserve Act and shows that the founding of the Federal Reserve took place not in a period of defeat but rather the advance of subaltern social forces and that the Federal Reserve Act is an embodiment of a historic compromise between various social classes and class fractions in the political economy of the United States prior to World War One. Drawing on the theoretical tradition of neo-Gramscianism, the paper argues that the emergence of a U.S. variant of a central bank is best understood in terms of Antonio Gramsci's concept of "trasformismo" which, in an historically open-ended process, created the Federal Reserve and a U.S. variant of "social imperialism" as a result of the "law of unintended consequences" of historical social movements. In other words, the American Empire was not the result of a devious plan by an all-powerful American or transnational ruling class, but rather its Making was the consequence of a political process in which subaltern social forces, unable to fundamentally challenge the existing power structure as such, are co-opted, absorbed and inscribe themselves into that very structure.

One implication of the concept of monetary equilibrium is that the money supply should vary with money demand. In a recent paper, Bagus and Howden (Rev Austrian Econ 24:383–402, 2011) argue that this conclusion is predicated on the assumption of price stickiness. The purpose of this paper is to suggest that the foundation of monetary equilibrium is the role of money as a medium of exchange. As such, changes in the demand for money result in changes in both nominal and real spending that are welfare-reducing. This proposition is then used to examine whether a monetary policy in which the central bank varies the money supply in response to money demand can be considered optimal. In addition, the paper considers how a free banking system with competitive note issuance would vary the money supply in response to changes in money demand. In both cases, the results are consistent with the concept of monetary equilibrium. In addition, these results can be obtained even when prices are perfectly flexible if trade is decentralized (i.e. not conducted in Walrasian markets). Price stickiness is therefore not a necessary condition to suggest that the money supply should vary with money demand.

In today’s world the possibility of competition in the money market is unthinkable, the central bank regime is thought as if it were the only viable. Historically this has not been the case: Most monetary economists of the past have discussed the appropriate role of the state in the money market.  In general terms it is possible to identify certain schools of thought through time. It is the aim of this thesis to accurately describe and analyze the main points of each one and to provide a rough classification of them: 1) First of all, from times of Plato and Aristotle to the XIV century we can acknowledge the existence of two postures – Free minting, which ascribes a mere supervisory role or no role at all to the state and State Minting which pronounces  that the government has the duty and the obligation to intervene in the coinage trade; 1.1) A transitory period in the XV and XVI centuries in which the discussion is centered around the nature of “interest” and  the banking industry; 2) A period that goes from the XVIII to the XIX centuries. The role of the banking business has been accepted and the debates are conformed around the inter dependence of the monetary and financial systems.  Three different schools emerge: a Free Banking School which adheres to the principles of Laissez-faire in the money market;  a Central Banking “rule bounded” School which states that it is necessary to have a central monopolist entity that could keep the national metallic reserves by which it could provide a stable and redeemable money supply ; a Central Banking “discretional” School that manifests that money is endogenous to the economy, yet a central bank is needed for financial stability purposes.  2.1) We can identify a second transitory period in times of the Belle Époque of capitalism (1870-1930) which correctly takes the name of “monetary orthodoxy” and accepts the need of a Central Bank both to provide sound money – via a gold standard- and because its role as the lender of last resort of the economy; 3) A third period comes about the end of the great depression to our own time. First, a renewed Central Banking “discretional” School gains prominence and articulates a second role for the Central Bank: to actively pursue policy objectives (economic activity and employment). For which it is necessary to adopt a fiat monetary system;  given the 70´s stagflation problems,  a rehabilitated Central Banking “rule bounded” school emerges and pin points the importance of stabilizing consumer prices via an unchanging fiat money supply; as alternative to this school, a Modern Laissez-Faire School appears which emphasizes the possibility of free market solutions to the money market via several options  - Hayek-Klein , a fiat private competition system; Selgin-White, a modern free banking approach; and Salerno-Huerta de Soto and Greenfield-Yeager as heterodox approaches.

Abstract: Since a few decades several sub-disciplines within economics have witnessed a reorientation towards institutional analysis. This development has in particular also affected the fields of macroeconomics and monetary theory where it has led to several proposals for far-reaching financial and monetary reform. One of the more successful of these proposals advocates a fractional-reserve free banking system, that is, a system with no central bank, but with permission for the banks to operate with a fractional reserve. This article exposes ...

"THE DISCUSSION OF WHAT IS and what is not inflation has become important among the Austrian economists in their debate regarding free banking with fractional reserves versus banking with 100-percent reserve. That such an old and important discussion has not yet reached a consensus is interesting and suggests that there may be a problem or ambiguity around this concept.
Many Austrians also turn to the writings of Ludwig von Mises to find out what he himself considered to be inflation. The main intention is to find out if, in either system, free banking with fractional reserves or a 100-percent reserve, there could be cases of free market inflation. In particular, does any
change in the quantity of money (in the broad sense) imply inflation? Is it inflationary for the banking system to expand the quantity of fiduciary media even when there has been an increase in the demand to hold money in the broader sense?"

This paper proposes a methodology to calculate the systemic risk in historical research, understanding that the characteristics of non modern financial systems and the availability of information do not enable the use of recent techniques of measuring financial risk. I propose a method of simple application and scarce information requirements, using the degree of leverage as an approximation of the individual risk, and the network theory to determine the allocation of individual risks throughout the system. The methodology is especially useful for studying the banking systems in early corporatizing periods. After been exposed the methodology, which takes as its central axis the shareholders, and the property as base linkages between institutions, it is mentioned its strengths and weaknesses; being, finally, tested in an application for the free banking experience in Antioquia.

The hypothesis of a free circulation of money and of bank accountancy would make them as more reliable and government-centric currencies raised by the Austrian economist Friedrich August von Hayek about the privatization of money in the face of the recent emergence of the market for cryptomoedas, which are available in their weights, despite in a still probative state. To do so, it will reassess the concept of money through the analysis of brand formation and as monetary weights of the knowledge school. The historical context of the Hayekian thesis will be analyzed, as well as the mainstream monetary theory and the view of other diverse aspects, besides proposing a version of the current context of monetary theories and showing The example of a presentation of hypotheses, besides showing as recurrent modifications of the implementation of the customs of the economies and the society in general.

Para, tarihi süreç içerisinde mal para sisteminden itibari para sistemine dönüşmüş ve günümüzde dijital paralar hayatımıza girmiştir. Dijital paralar, paranın evriminde en son aşamadır ve bu teknoloji ile mümkün olmuştur. Dijital paralar, işlemleri güvence altına almak, doğrulamak ve belirli bir kriptopara biriminin yeni birimlerinin oluşturulmasını kontrol etmek için kriptografi kullanan bir değişim aracı olarak oluşturulmuştur. Bu çalışma, paranın evriminde kriptoparaların gelişimini incelemektedir. Bu bağlamda giriş bölümünde paranın gelişimi anlatıldıktan sonra ilk bölümde serbest bankacılık sistemi üzerinde durulacaktır. Çalışma, ikinci ve üçüncü bölümlerde sırasıyla Blokzinciri teknolojisini ve kriptopara sistemini karşılaştırmalı bir analiz ile açıklamaya çalışacaktır. Son olarak, çalışma sonuç ve tartışma bölümü ile bitirilecektir.

Some have argued that nominal income targeting is desirable because it would replicate characteristics of a free banking regime. However, the degree to which this is true and desirable depends on the properties of commodity-based monetary regimes. In this paper, I provide a model of commodity money. I find that a pure commodity money regime can only generate an efficient stationary equilibrium by divine coincidence or by giving policymakers control over the supply of the commodity. The introduction of bank notes makes it much more likely that the economy will achieve an efficient equilibrium. In particular, in a commodity-based system, bank notes are equivalent to call options on the commodity and the commodity holdings are equivalent to a put option on the commodity. Assuming that there is no risk-free arbitrage in equilibrium, then both bank notes and the commodity will have an expected rate of return equal to the risk-free rate. If the risk-free rate is equal to the rate of time preference, then this commodity regime is efficient. A free banking system would therefore not only minimize deviations between the supply and demand for money, but it would also (potentially) implement the Friedman rule. Both market-based and more conventional nominal income targeting regimes are unlikely to replicate both features of a free banking system unless the nominal income target has a deflationary bias.

This article studies the main aspects of free banking to put forward the argument that such a system is endogenously stable and that financial crisis is an exogenous phenomenon. In support of this conclusion, it analyzes the cases of bank runs, concerted expansion and how free banking would affect business cycles according to different schools of thought. The article concludes that money can efficiently be a market phenomenon outside the state.

Macroeconomics is grounded in microeconomics and uses mathematical models to simplify and illustrate complex processes, learning it can be difficult. And because of this, macroeconomic-principles textbooks fail to connect topics and models in a concise, cohesive, and meaningful way.

This book overcomes these shortcomings with better topic selection and organization by building a model of the macro-economy, and utilizing a single hypothetical numerical example throughout the book to teach you the key principles. Keynesian economics, a school of economic thought based on the views of the British economist John Maynard Keynes (1883 to 1946), is used to construct the model of the macro-economy because it is elegant, simplistic, intuitive, and politicians apply it when enacting stimulus bills. (That said, the book is not an endorsement of Keynesian economics, nor does it suggest that mathematical modeling is the quintessential element of economic analysis.)

This book allows you (whether business executive, graduate or undergraduate student, or policy maker) to gain a fuller understanding of how the macro-economy reacts to economic shocks and policy changes from several economic perspectives.

This book is organized into three parts. Chapters 1 and 2 lay the foundation of the aggregate market model that is constructed in Chapters 3 and 4. After this model is assembled using data, Keynesian economics, and simple linear equations, it is analyzed using hypothetical numerical values to understand how the macro-economy responds to economic shocks and policy changes. To aid in performing these numerical analyses, I have written several EXCEL simulations that can be downloaded from www.halsnarr.com/teaching.htm. The model is then used to study the effectiveness of fiscal policy in Chapter 5 from different schools of economic thought. In Chapter 6, money, banking, and monetary policy are introduced, analyzed, and evaluated. After evaluating mainstream economics, in the context of the 2008 financial collapse and subsequent recovery, Chapter 7 presents and analyzes an alternative model of the macro-economy developed by Austrian macroeconomist Roger Garrison (2001).

Abstract In this paper, we use a dual currency Lagos-Wright model to explore the nature of optimal monetary policy under currency competition using different timing protocols. The central banks are utility maximizing players. To characterize equilibrium with reputation, we model the centralized market sub period of the Lagos-Wright economy as an infinitely repeated game between the two Leviathan central banks (long run players) and a continuum of competitive agents (short run players). Concentrating on Markov strategies ...

Currently, the theoretical literature on unregulated banking (free banking) is extensive. However, the empirical evidence of unregulated banking is thin, relative to the empirical evidence underlying regulated banking. The purpose of this article is to argue that Lynne Pierson Doti' s work on Californian banking in the 19 th century offers an underappreciated but important roadmap for future research regarding banking activities in unregulated environments. Replicating studies like that of banking in California would enlarge the corpus of empirical evidence regarding free banking theory.

In this paper, we use a dual currency Lagos-Wright model to explore the nature of optimal monetary policy under currency competition using different timing protocols. The central banks are utility maximizing players. To characterize equilibrium with reputation, we model the centralized market sub period of the Lagos-Wright economy as an infinitely repeated game between the two Leviathan central banks (long run players) and a continuum of competitive agents (short run players). Concentrating on Markov strategies in such a game shows that the Markov perfect equilibrium features highest inflation tax. However, allowing for reputation concerns improves the inflation outcome. Such a game typically features multiple equilibriums but the competition between the banks allows the use of renegotiation proof-ness as an equilibrium selection mechanism. Accordingly, equilibrium featuring the lowest inflation tax is weakly renegotiation proof, suggesting that better inflation outcome is more like...

Macroeconomics is grounded in microeconomics and uses mathematical models to simplify and illustrate complex processes, learning it can be difficult. And because of this, macroeconomic principles textbooks fail to connect topics and models in a concise, cohesive, and meaningful way. This book is a part of a series that recognizes that the intense competition among emerging markets and against advanced economies to capture their share of the global economy. Most important to this end is the study and practice of international business and foreign trade.