Competitive Bank Monies: Reconsidering Hayek and Klein from a Transactions Perspective

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Competitive Bank Monies: Reconsidering Hayek and Klein from a Transactions Perspective

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J. Stephen Ferris () (Department of Economics, Carleton University)

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J. Stephen Ferris

Abstract

In this paper the case made by Klein (1975) and Hayek (1976) for competitive bank monies is reconsidered. To do so we build a model of the demand for bank money that derives from money’s ability to separate commodity purchases from sales across time and so avoid the trading costs implied by barter and the double coincidence of wants. Such a model allows us to view the bank cheating or time inconsistency problem alleged to undermine the case for free banking as part of a larger concern with the creation and maintenance of bank quality in a competitive banking environment. As such it helps to further refine the circumstances under which competition is and is not consistent with optimal money provision and stable money prices.

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Paper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 03-02.

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Length: 21 pages
Date of creation: 15 Feb 2003
Date of revision:
Publication status: Published: Carleton Economic Paper
Handle: RePEc:car:carecp:03-02

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Find related papers by JEL classification:
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

This paper has been announced in the following NEP Reports:

NEP-ALL-2003-02-24 (All new papers)
NEP-MAC-2003-02-24 (Macroeconomics)

References listed on IDEAS
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Ferris, J Stephen, 1981. "A Transactions Theory of Trade Credit Use," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 243-70, May. [Downloadable!] (restricted)
Saving, Thomas R, 1971. "Transactions Costs and the Demand for Money," American Economic Review, American Economic Association, vol. 61(3), pages 407-20, June. [Downloadable!] (restricted)

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