A critical analysis of central banks and fractional-reserve free banking from the Austrian School perspective

2008 ◽  
pp. 151-159
Keyword(s):  
Critical Analysis ◽  
Central Banks ◽  
Austrian School ◽  
Free Banking ◽  
Fractional Reserve

Rozeff on free banking: a critique

2018 ◽  
Vol 34 (2) ◽  
pp. 123-136
Author(s):  
Laura Davidson ◽  
Walter E. Block
Keyword(s):  
Design Methodology ◽  
Free Banking ◽  
Fractional Reserve Banking ◽  
Content Type ◽  
Monetary System ◽  
Fractional Reserve ◽  
Reserve Banking

Purpose The purpose of this paper is to correct Rozeff (2010). He contends that fractional-reserve banking is legitimate and efficacious. The authors demonstrate that it is not. Design/methodology/approach The design of this paper is to quote widely from Rozeff (2010) and then to expose his errors of analysis. Findings The authors demonstrate that fractional-reserve banking is neither legitimate nor efficacious. Originality/value Money is the lifeblood of the economy. If so, then banking is the marrow of the economy, since it is from that sector that money arises in the first place. It is crucially important, then, that the monetary system be based on sound principles. Fractional-reserve banking is a violation of these sound principles. Therefore, it is valuable to demonstrate that this is indeed the case.

scholarly journals Unanswered quibbles: George Selgin still gets it wrong with fractional reserve free banking

2021 ◽  
Author(s):  
Philipp Bagus ◽  
David Howden
Keyword(s):  
Banking System ◽  
Real Income ◽  
Jel Classification ◽  
Free Banking ◽  
Fractional Reserve Banking ◽  
Credit Expansion ◽  
Investment Projects ◽  
Fractional Reserve ◽  
Monetary Equilibrium ◽  
El Sistema

In this article we reply to George Selgin’s counterarguments to our article «Fractional Reserve Free Banking: Some Quibbles». Selgin regards holding cash as saving while we focus on the real savings necessary to maintain investment projects. Real savings are unconsumed real income. Variations in real savings are not necessarily equal to variations in cash holdings. We show that a coordinated credit expansion in a fractional reserve free banking (FRFB) system is possible and that precautionary reserves consequently do not pose a necessary limit. We discuss various instances in which a FRFB system may expand credit without a prior increase in real savings. These facets all demonstrate why a fractional reserve banking system —even a free banking one— is inherently unstable, and incentivized to impose a stabilizing central bank. We find that at the root of our disagreements with Selgin lies a different approach to monetary theory. Selgin subscribes to the aggregative equation of exchange, which impedes him from seeing the microeconomic problems that the stabilization of «MV» by a FRFB system causes. Key words: Free banking, fractional reserve, monetary equilibrium, credit expansion, economic cycle. JEL Classification: B53, E32, E42, E5, G18, H11, K39, P3, P34. Resumen: En este artículo respondemos a George Selgin, que a su vez respondió a nuestro artículo «Fractional Reserve Free Banking: Some Quibbles». Selgin considera que los saldos de tesorería son ahorros, mientras nosotros nos fijamos en los ahorros reales necesarios para mantener proyectos de inversion. Ahorros reales son ingresos reales no consumidos. Variaciones en los ahorros reales no necesariamente coinciden con las variaciones en los saldos de tesoreria. Mostramos que una expansión crediticia coordinada es posible en un sistema bancario de reserva fraccionaria (FRFB) y que las reservas prudenciales no constituyen necesariamente un limite a la expansión co - ordinada. Discutimos varios escenarios en los que el sistema FRFB puede expandir los créditos sin un aumento previo en los ahorros reales. Todas estas facetas muestran que un sistema bancario de reservas fraccionarias —incluso uno de banca libre— es inherentemente inestable y produce incentivos para imponer un banco central estabilizador. Mostramos que el origen de nuestras diferencias con Selgin está en un enfoque diferente a la teoría monetaria. Selgin es partidario de la ecuación de intercambio que es muy agregada y que le impide ver los problemas microeconomicas que la estabilización de «MV» por parte del sistema FRFB produce. Palabras clave: Banca libre, reserva fraccionaria, equilibrio monetario, expansión crediticia, ciclo económico. Clasificación JEL: B53, E32, E42, E5, G18, H11, K39, P3, P34.

scholarly journals Jesús Huerta de Soto: The Synthesizer of the Austrian School

2017 ◽  
pp. 173-202
Author(s):  
William Hongsong Wang
Keyword(s):  
Jel Classification ◽  
Bank Credit ◽  
Austrian School ◽  
Dynamic Efficiency ◽  
Free Banking ◽  
Economic Cycles ◽  
Palabras Clave

Professor Jesús Huerta de Soto is one of the leading Austrian School economists in the contemporary era. This paper reviews his biography as a great Austrian School economist, a successful entrepreneur and a tireless fighter for freedom. This paper also reviews his original and important aca-demic contributions on the theory of socialism and entrepreneurship, the theory of bank credit and economic cycles, and the theory of dynamic efficiency. Keywords: Jesús Huerta de Soto, Austrian School, free banking, socialism, dynamic efficiency. JEL Classification: B41, B53, C18, D53, D6, D81, D83, E32, E42, E52, E6, G21, H23, K11, K12, L21, P11, P41, P21. Resumen: El profesor Jesús Huerta de Soto es actualmente uno de los principa-les economistas de la Escuela Austriaca. Este trabajo revisa su biografía como gran economista austriaco, emprendedor de éxito, y un luchador incansable y entusiasta por la libertad. Este artículo también revisa sus contribuciones aca-démicas originales en lo que respecta a la teoría del socialismo y la función empresarial, la teoría del crédito bancario y los ciclos económicos, y la teoría de la eficiencia dinámica. Palabras clave: Jesús Huerta de Soto, Escuela Austriaca, banca libre, socia-lismo, eficiencia dinámica. Clasificación JEL: B41, B53, C18, D53, D6, D81, D83, E32, E42, E52, E6, G21, H23, K11, K12, L21, P11, P41, P21.

scholarly journals Money, Banking, and Financial Markets

2019 ◽  
Vol 87 (5) ◽  
pp. 2049-2086 ◽  
Author(s):  
David Andolfatto ◽  
Aleksander Berentsen ◽  
Fernando M Martin
Keyword(s):  
Central Bank ◽  
Financial Markets ◽  
Dynamic Model ◽  
Banking System ◽  
Free Banking ◽  
Lender Of Last Resort ◽  
Fractional Reserve ◽  
Deposit Contracts ◽  
Liquidity Insurance ◽  
Meaningful Role

Abstract The fact that money, banking, and financial markets interact in important ways seems self-evident. The theoretical nature of this interaction, however, has not been fully explored. To this end, we integrate the Diamond (1997, Journal of Political Economy105, 928–956) model of banking and financial markets with the Lagos and Wright (2005, Journal of Political Economy113, 463–484) dynamic model of monetary exchange—a union that bears a framework in which fractional reserve banks emerge in equilibrium, where bank assets are funded with liabilities made demandable in government money, where the terms of bank deposit contracts are affected by the liquidity insurance available in financial markets, where banks are subject to runs, and where a central bank has a meaningful role to play, both in terms of inflation policy and as a lender of last resort. Among other things, the model provides a rationale for nominal deposit contracts combined with a central bank lender-of-last-resort facility to promote efficient liquidity insurance and a panic-free banking system.

The free banking challenge to central banks

1994 ◽  
Vol 8 (3) ◽  
pp. 411-425 ◽  
Author(s):  
Charles A. E. Goodhart
Keyword(s):  
Central Banks ◽  
Free Banking

scholarly journals Central Banking and Inequalities: Old Tropes and New Practices

2021 ◽  
Author(s):  
Clément Fontan ◽  
Peter Dietsch ◽  
François Claveau ◽  
Jérémie Dion
Keyword(s):  
Federal Reserve ◽  
Critical Analysis ◽  
Policy Instruments ◽  
Central Banks ◽  
Central Banking ◽  
Computer Assisted ◽  
Bank Of Canada ◽  
The One ◽  
Central Bankers ◽  
Do So

This paper presents a critical analysis of the stance taken on inequality by two central banks since 2015: the Bank of Canada (BoC) and the Federal Reserve (Fed). The analysis is informed by a computer-assisted discourse analysis of how central bankers from the two institutions position themselves when it comes to issues of inequality. We observe that the position on inequality of the two central banks has changed in recent years and continues to do so. We argue that the stance on inequality taken by the BoC and the Fed suffers from a number of both inconsistencies and shortcomings. On the one hand, the BoC and the Fed claim that monetary policy instruments are too blunt to target specific sectors of the economy. On the other hand, with their response to COVID-19, they have demonstrated that such targeting is possible after all.

scholarly journals The Austrian school of Madrid

2021 ◽  
Author(s):  
Cristóbal Matarán López
Keyword(s):  
Historical Development ◽  
Current Situation ◽  
Austrian Economics ◽  
Austrian School ◽  
Half Century ◽  
Economic Problems ◽  
Fractional Reserve ◽  
Distinct Branch

AbstractThis paper focuses on the current situation and the historical development of Austrian Economics in Madrid. We will analyse the formation of this School as the result of the thesis defended by Joaquín Reig Albiol in the late fifties and the current economic debate surrounding the fractional reserve and other complex issues. In this half-century tour, we will explore three different generations of Austrian economists in Spain, whilst demonstrating that a distinct branch of the Austrian School is today live and well in Madrid. Eventually, we will discover how the Spanish Austrian economists have applied praxeology to contemporary political and economic problems and conclude that a vigorous and growing economic school of thought exists in Madrid.

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