The Theory of Monetary Institutions

by White, Lawrence

• ISBN13: 9780631212140
• ISBN10: 0631212140
• Edition: 1st
• Format: Paperback
• Copyright: 1999-06-18
• Publisher: Wiley-Blackwell

Summary

The Theory of Monetary Institutions covers free banking monetary thought and a theoretical account of the evolution of monetary institutions.

Author Biography

Lawrence H. White is Professor of Economics at the University of Missouri - St. Louis. He has published articles in several journals, including the Journal of Money, Credit, and Banking; the Journal of Economic Literature; Business History Review; and American Economic Review. He is the author of Free Banking in Britain (Second Edition), and Competition and Currency. Dr. White holds an AB in Economics from Harvard University and a PhD in Economics from University of California, Los Angeles. His principal fields of study and lecture are monetary theory, banking history, the history of economic thought, and the future of money.

Table of Contents

List of Figures and Tables	ix
Preface	xi
Acknowledgments	xiii
The Evolution of Market Monetary Institutions	1	(25)
The Mystery of Money	1	(2)
Menger's Theory Restated	3	(4)
Some Implications of the Theory	7	(2)
From Simple Commodity Money to Coins	9	(2)
Bank-issued Money	11	(3)
Regular Par Acceptance	14	(2)
Clearing Arrangements	16	(2)
The Path to Fiat Money	18	(2)
Spontaneous Separation between the Media of Redemption and Account?	20	(4)
Questions	24	(2)
Commodity Money	26	(27)
Determining the Price Level	27	(1)
The Simple Stock-flow Analytics of Gold Supply and Demand	28	(9)
The Historical Sources of Gold Supply Disturbances	37	(2)
The Benefits of a Gold Standard	39	(3)
The Resource Costs of a Gold Standard	42	(6)
Is a Gold Standard Worth the Resource Cost?	48	(2)
Questions	50	(3)
Money Issue by Unrestricted Banks	53	(17)
The Purchasing Power of Money	54	(2)
Bank Optimization and the Equilibrium Quantity of Bank-issued Money	56	(4)
Correcting Over-issue by an Individual Bank	60	(1)
Correcting Over-issue by the System as a Whole	61	(3)
Responding to Shifts in Demand	64	(3)
Shifts between Deposits and Currency	67	(1)
Questions	68	(2)
The Evolution and Rationales of Central Banking	70	(18)
Central Banking Roles and CHAs	71	(9)
The Origins of Government Central Banks	80	(1)
Historical Cases	81	(5)
Questions	86	(2)
Should Government Play a Role in Money?	88	(33)
Is Some Aspect of Money a Public Good?	89	(3)
Are There Relevant External Benefits in the Choice of Which Money to Use?	92	(13)
Are There Relevant External Benefits to the Choice of How Much Money to Hold?	105	(11)
Is the Supply of Base Money a Natural Monopoly?	116	(3)
Questions	119	(2)
Should Government Play a Role in Banking?	121	(17)
The Problem of Bank Runs	121	(2)
Inherent Fragility in Theory: The Diamond-Dybvig Model	123	(3)
The Fragility of the Diamond-Dybvig Bank: A Numerical Example	126	(1)
Deposit Insurance in the Diamond-Dybvig Model	127	(1)
Criticism of the Diamond-Dybvig Model	127	(1)
Are Deposit Contracts Inherently Fragile?	128	(4)
Historical Evidence on Inherent Fragility	132	(1)
Is There a Natural Monopoly in Bank-issued Money?	133	(1)
Can Government Produce Currency More Efficiently?	134	(1)
Questions	135	(3)
Seigniorage	138	(35)
The Sources of Seigniorage	139	(4)
Maximizing the Take from Seigniorage	143	(7)
Reserve Requirements	150	(3)
Other Legal Restrictions	153	(2)
The Dynamics of Hyperinflation	155	(3)
The Transition between Steady States: Is Honesty a Government's Best Policy?	158	(5)
How Well Does Seigniorage-maximization Explain Actual Governments' Behavior?	163	(2)
Questions	165	(1)
Appendix	166	(7)
Central Bank as Bureaucracy	173	(7)
Bureaucratic Explanation of the Fed's Operating Procedures	173	(3)
Bureaucracy and ``Inflationary Bias''	176	(3)
Questions	179	(1)
Political Business Cycle Hypotheses	180	(13)
The Nordhaus-MacRae Model	180	(7)
The Rational Expectations Critique	187	(1)
An Alternative Formulation: Wagner's Political Seigniorage Cycle	188	(1)
The ``Partisan'' Political Business Cycle Theory	189	(3)
Questions	192	(1)
Discretion and Dynamic Inconsistency	193	(22)
The Kydland-Prescott Model	194	(5)
Positive Implications: Using the Model to Explain Changes in Inflation	199	(3)
Policy Implications Under Discretion	202	(2)
Rules Versus Discretion	204	(3)
Subsequent Literature	207	(1)
Questions	208	(2)
Appendix: An Algebraic Version of the Model	210	(5)
Monetary Rules	215	(12)
Benefits and Burdens of Counter-cyclical Policy	215	(2)
Independence for the Central Bank	217	(1)
Arguments for Rules	218	(1)
Friedman's Proposals	219	(4)
McCallum's Case for a Feedback Rule	223	(2)
Simple Versus Complicated Rules	225	(1)
Questions	226	(1)
Competitive Supply of Fiat-type Money	227	(13)
Klein's Model with Perfect Foresight	228	(3)
Klein's Model with ``Imperfect Foresight''	231	(2)
Is the Equilibrium Rate of Inflation Bounded under Imperfect Foresight?	233	(5)
Conclusion	238	(1)
Questions	239	(1)
Cashless Competitive Payments and Legal Restrictions	240	(9)
The Greenfield-Yeager Proposal	240	(2)
Is Bundles-worth Redemption Workable?	242	(1)
Other Concerns About the GY Proposal	243	(1)
The Legal Restrictions Theory	244	(2)
Historical Evidence on the Non-coexistence Prediction	246	(1)
Questions	247	(2)
References	249	(11)
Index	260