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2018 | OriginalPaper | Buchkapitel

45. Consequences of the Anachronism of Fractional Reserve Arrangements

verfasst von : Leonidas Zelmanovitz

Erschienen in: James M. Buchanan

Verlag: Springer International Publishing

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Abstract

The aim with this chapter is to find some logical conclusions about ideal monetary arrangements departing from Buchanan’s monetary ideas. First, his ideas about the constitutionalization of money are explained. Second, his proposal for the abolition of fractional reserve banking, once put in historical context, allows us to conclude it had become anachronistic. Finally, his advocacy for the adoption of a common brick standard, arguably, offers a solution to the main criticism raised against “narrow banking” schemes. Put together they seem to be the last logical step before the complete separation of monetary functions in theoretical terms. In spite of those ideas’ long tradition, starting with the Chicago Plan, they are considered by many to be outside the mainstream economics; so, another aim with this chapter is to show the solid economic logic behind them once institutional arrangements and other non-economic factors are acknowledged as part of the reality.

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Vorheriges Kapitel Can There Be Such a Thing as Legitimate Public Debt in Democracy? De Viti de Marco and Buchanan Compared

Nächstes Kapitel Italian Influences on Buchanan’s Research Program

For Buchanan, “(I)f the predictability norm is accepted as appropriate for monetary policy, and if it is accepted that this represents a meaningful and conceptually attainable norm, the next question to be faced involves the choice of means to implement it” (Buchanan 1962, p. 162).

The common brick proposal was originally formulated by Prof. C. O. Hardy, who never published it in a formal paper (Buchanan 1962, p. 173); so, we are not attributing the idea of a brick standard in itself to Buchanan, but his particular design of such a system, and, of course, its publicizing.

However, allowing, as Buchanan does (1962, p. 177), the government to use the bricks for the construction of government’s buildings is to bring inflationary finance by the back door, with the money supply being leveraged by the government.

It resides outside the scope of this essay to discuss whether commodity money, with or without fractional reserve arrangements, could provide a “better” monetary system than any fiat money arrangement discussed by Buchanan and analyzed here. The short answer to that is that, no, the tendency to economize on base money, once it is expensive, will necessarily create the sort of bad incentives seen in the historical developments which resulted in the movement away from those arrangements. A more extensive treatment of that may be found elsewhere (Zelmanovitz 2015, p. 324).

See Zelmanovitz (2015, p. 20).

See footnote 21 on Einaudi’s classical paper on “Imaginary money” (Zelmanovitz 2015, p. 51).

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Titel: Consequences of the Anachronism of Fractional Reserve Arrangements
verfasst von: Leonidas Zelmanovitz
Verlag: Springer International Publishing
Buch: James M. Buchanan
Print ISBN: 978-3-030-03079-7

Electronic ISBN: 978-3-030-03080-3

Copyright-Jahr: 2018
DOI: https://doi.org/10.1007/978-3-030-03080-3_45