The Continuing Continuum Problem of Deposits and Loans

Bagus, Philipp; Howden, David

doi:10.1007/s10551-011-0996-5

Cited by 29 publications

(16 citation statements)

References 8 publications

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“…(6) In this connection reference can be made to, among others, Barnett & Block (2009a;2009b;, Bagus & Howden (2009;2010a;2012a;2012b;2013a;2013b), Bagus (2010b), Block & Davidson (2011), Davidson (2014a2014b), Bagus, Howden & Block (2013).…”

Section: Notesmentioning

confidence: 99%

Monetary Constitutionalism: Some Recent Developments

Hauwe

2017

SSRN Journal

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The volume edited by Leland Yeager more than 50 years ago and published in 1962 under the title In Search of a Monetary Constitution has turned out to be remarkably prescient since the Great Inflation was then about to begin. One might expect that in the wake of the Global Financial Crisis and Great Recession interest in monetary-constitutional matters would be revived and this has indeed been the case. In this paper an attempt is made to assess whether and to what extent scientific progress has been made in defining the nature and characteristics of a monetary constitution for the post-Crisis world. To that end some recent contributions to the literature are reviewed critically. IntroductionDespite some contributions to the economic literature that have acknowledged the role of central banks in the financial crisis and how these institutions have contributed to the Great Recession and the meager recovery thereafter (see e.g. Hetzel 2012), most economists have been more interested in analyzing the technical role that monetary policy played during and after the crisis, thus taking the existent framework as given, than in considering and addressing alternative frameworks for monetary policy. Some economists have not only been supporters of the current hypothetically optimal monetary framework but have even argued in favor of further enhancements on central bankers' discretionary powers. Several economists such as Nobel Prize winners Buchanan, Friedman and Hayek, however, had addressed the technicalities of monetary policy within the context of broader political economy concerns. Their proposals should be situated within the more general framework of institutional and constitutional reforms of the rules of the "monetary policy game". It is in the tradition of these contributions that we review some recent contributions without being exhaustive. The aim is to raise questions and to stimulate the intellectual debate rather than to provide conclusive answers. The Yeager 1962 volume and afterLeland Yeager's decision more than 50 years ago to organize a lecture series and the resulting volume on monetary constitutions (Yeager 1962) has turned out to be unusually prescient. It has been suggested that much damage might have been avoided if the world had listened to the message of the Yeager volume and subjected its central banks to the restrictions of a monetary constitution in the 1960s. (Rockoff 2015) In the aftermath of the 3 Global Financial Crisis one would expect thoughtful discussion of monetary constitutions to resume and this has indeed been the case. In this paper we will review some recent contributions to this debate and try to assess if, and to what extent, scientific progress has been made in the search for a monetary constitution. "A great deal of contemporary monetary scholarship (…) has concentrated on piecemeal and detailed study of our existing monetary structure and its performance. (…) The reforms proposed have generally been correspondingly minor. Meritorious though this detailed work has be...

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Section: Notesmentioning

confidence: 99%

Monetary Constitutionalism: Some Recent Developments

Hauwe

2017

SSRN Journal

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“…While constraining opening hours or clearing times may seem to remove the full availability of a deposit, they are more apparent than real examples. Some degree of physical or institutional limitation will always exist on transferring a deposit to another or on withdrawing it (Bagus and Howden 2012b). The question is one of whether this is in the depository's control (e.g., security checks, opening hours or clearing times do not negate the depositor´s control).…”

Section: A Simple Framework For the Ethicality Of Financial Contractsmentioning

confidence: 99%

Reassessing the Ethicality of Some Common Financial Practices

2015

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Abstract:Depositors have perceived banks as acting unethically during the most recent recession. One area of consternation is the ambiguity of the legal obligations entailed by the deposit contract when it is backed with only fractional reserves. In this article we apply an existing analysis of the legitimacy and ethicality of banking practices to a wider range of financial transactions, including insurance policies, securities lending, perpetual bonds and callable loans. Securities lending in particular creates rights violations analogous to those in fractional-reserve banking. Both callable loans and perpetual bonds have clear legal obligations which are not inherently problematic, though we herein clarify what these obligations are. Finally, we apply our ethical framework to demonstrate that insurance products are distinct from banking deposit contracts, and that perceived parallels between the two products underestimate these differences.

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Abstract: Barnett and Block (forthcoming) claim that Bagus and Howden (2012b) support indirectly the concept of market failure. In this paper we show that maturity mismatching in an unhampered market may imply entrepreneurial error but cannot be considered a market failure.

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confidence: 99%

Entrepreneurial Error Does Not Equal Market Failure

2016

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Barnett and Block (forthcoming) claim that Bagus and Howden (2012b) support indirectly the concept of market failure. In this paper we show that maturity mismatching in an unhampered market may imply entrepreneurial error but cannot be considered a market failure. We demonstrate why fractional-reserve banking leads to business cycles even if there is no central bank and why maturity mismatching does not per se lead to clusters of errors in a free market. Finally, we assure that, in contrast to the examples provided by Barnett and Block, maturity mismatching does not imply the creation of two incompatible contracts due to the fungible nature of money.

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The Continuing Continuum Problem of Deposits and Loans

Cited by 29 publications

References 8 publications

Monetary Constitutionalism: Some Recent Developments

Monetary Constitutionalism: Some Recent Developments

Reassessing the Ethicality of Some Common Financial Practices

Entrepreneurial Error Does Not Equal Market Failure

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