Roger W. Garrison

The theory of free banking : money supply under competitive note issue

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of the publisher.The theory of free banking: money supply under competitive note issue / George A. Selgin.

Overconsumption and forced saving in the Mises-Hayek theory of the business cycle

The business cycle theory developed during the interwar period by Ludwig von Mises and Friedrich A. Hayek is a theory of the unsustainable boom. Responding to cheap-credit policies of the central bank, the economy can find itself on a growth path that is inconsistent with the underlying economic realities.1 Internal tensions in the market forces that guide consumption and investment decisions eventually precipitate a bust. This understanding of the market process that takes the economy through boom and bust has come piecemeal and in a leapfrog progression in the writings of Mises and Hayek. Mises first gave the theory its Austrian identity in his Theory of Money and Credit ([1912] 1953, 357–66). Clearly, the theory emerges as a combination of the interestrate dynamics introduced by Swedish economist Knut Wicksell ([1898]

Time and money: The universals of macroeconomic theorizing☆

Abstract A broad overview of the macroeconomic literature suggests that two objects of economizing behavior, time and money, are the universals or common denominators of macroeconomic theory. Explicit recognition of these universals allows for a fruitful comparison of Keynesians and Monetarists. The former tend to deny the possibility of a market solution to macroeconomic problems, while the latter tend to deny the problems themselves. Austrian macroeconomics, which consists of an integration of capital theory and monetary theory and lies between these two extreme positions, is used to assess recent developments in the mainstreams of macroeconomics.

New Classical and Old Austrian Economics: Equilibrium Business Cycle Theory in Perspective

The recent flourishing of New Classical economics, and especially its Equilibrium Business Cycle Theory (EBCT), has given a fresh hearing to the Old-but still developing-Austrian Business Cycle Theory (ABCT). While the New and the Old differ radically in both substance and methods, they exhibit a certain formal congruency that has captured the attention of both schools. The formal similarities between EBCT and ABCT invites a point-bypoint comparison, but the comparison itself dramatizes differences between the two views in a way that adds to the integrity and plausibility of the Austrian theory. In modern macroeconomic literature, the label EBCT is applied sometimes so broadly as to include New Keynesian as well as New Classical constructions and sometimes so narrowly as to preclude the very developments within the New Classical school that are most closely related to ABCT. So-called Real Business Cycle Theory, in which cyclical movements of macroeconomic variables are characterized by both market clearing and Pareto optimality, is sometimes designated as the only true equilibrium construction. The comparison of New Classical and Old Austrian theories is best facilitated by letting EBCT refer to those theories in which (a) individuals make the best use of the information available to them and (b) an informational deficiency temporarily masks the intementions of the monetary authority. As exposited by Robert Lucas (1981), Robert Barro (1981) and others, EBCT so conceived accounts for business cycles in terms of the actions of market participants confronted with what has come to be known as a signal-extraction problem. Difficulties in

Friedrich August von Hayek

Friedrich August von Hayek, a central figure in 20th-century economics and foremost representative of the Austrian tradition, 1974 Nobel laureate in economics, a prolific author not only in the field of economics but also in the fields of political philosophy, psychology and epistemology, was born in Vienna on 8 May 1899. Following military service as an artillery officer in World War I, Hayek entered the University of Vienna, where he attended the lectures of Friedrich von Wieser and Othmar Spann and obtained doctorates in law and political science. After spending a year in New York (1923–4), Hayek returned to Vienna where he joined the famous Privatseminar conducted by Ludwig von Mises. In 1927 Hayek became the first director of the Austrian Institute for Business Cycle Research. On an invitation from Lionel Robbins, he lectured at the London School of Economics in 1931 and subsequently accepted the Tooke Chair. Hayek soon came to be a vigorous participant in the debates that raged in England during the 1930s concerning monetary, capital, and business-cycle theories and was a major figure in the celebrated controversies with John Maynard Keynes, Piero Sraffa and Frank H. Knight.

Central banking, free banking, and financial crises

A Summary ViewIn the Keynesian view, the central bank is a part of an extramarket remedy to a market malady. Investment markets are inherently unstable; government control of the economys money supply is an important element in macroeconomic stabilization policy. The case against central banking—and for free banking—reverses the characterization of both remedy and malady. Free banking is a part of a market remedy to an extramarket malady. Even this stark reversal understates the case for free banking. It would remain valid even if we take the dramatic and chronic fiscal irresponsibility of the Treasury as given. Periodic crises that will inevitably occur in such a debt-ridden economic environment would be more ably countered by the market forces of free banking than by the policy moves of a central bank. But the extent of the Treasurys fiscal irresponsibility is itself dependent upon whether the Treasury can count on an accommodating central bank. Free banking limits the scope of this potential source of instability while at the same time enhancing the markets ability to deal with whatever instabilities that may persist.

Can Monetary Stabilization Policy Be Improved by CPI Futures Targeting

Scott Sumner (and similarly Kevin Dowd) proposes to have the central bank write futures contracts on the Consumer Price Index, and automatically adjust the money stock in response to the publics net position in such contracts, as a way of improving the precision and credibility of monetary policy. The authors identify two serious problems that can be expected to render Sumners proposal ineffective: (1) the public has no incentive to take a speculative position in the contracts until it is too late to adjust the money stock and (2) the central bank lacks an effective budget constraint. Copyright 1997 by Ohio State University Press.

The Kaleidic world of Ludwig Lachmann

THE MARKET AS AN ECONOMIC PROCESS by Ludwig M. Lachmann New York: Basil Blackwell, 1986. 173 pp.,

The roaring twenties and the bullish eighties: The role of government in boom and bust

29–95

Financial Stability and FDIC Insurance

There are significant parallels between the Roaring Twenties and the Bullish Eighties. Both decades were characterized by a policy‐induced artificial boom that ended with an inevitable bust. The Federal Reserve had a hand in both episodes, keeping the interest rate artificially low in the first one and keeping Treasury bills artificially risk‐free in the second. Comparing the two episodes in terms of Federal Reserve policy, federal government borrowing, and the regulatory environment faced by the banking community accounts for both similarities and differences between the economic realities of the 1990s and those of the 1930s.