For those of you who missed it, Philipp Bagus and David Howden have written a piece in the Winter 2010 Quarterly Journal of Austrian Economics entitled "Fractional Reserve Free Banking: Some Quibbles" that is a critique of George Selgin's The Theory of Free Banking (1988). Bagus and Howden, of Iceland and Euro fame, explore several unaddressed issues in George Selgin’s claim that the best monetary system to maintain monetary equilibrium is a fractional reserve free banking one.
Selgin's masterful response dissects each one of their claims point by point: Monetary Disequilibrium, Apoplithorismophobia, Limits to Credit Expansion, Nominal Indeterminacy, Two Kinds of Money, Saving and Cash Holding, Getting Money where it is Wanted, Business Booms and Price Level Stabilization, The Business Cycle and Sluggish Price Adjustment, and Spontaneous Central Banking.
This is an enjoyable read focusing on the primary 'economic' issues around free banking. When it comes to the legal and ethical issues, the 100-percenters routinely fail to establish how fractional reserve free banking stands in direct contrast to the legal principles of a free society when the practice is based on mutual and contractual full disclosure. In the end, Selgin's thesis comes out ahead in maintaining free banking (and yes, even fractional reserve free banking) as the dominant academic paradigm for monetary, and hence economic, freedom.
For additional conversation on the Mises Economics Blog, see here.
Sunday, April 3, 2011
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