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Rent-Seeking Origins of Central Banks: The Case of the Federal Reserve System

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Author Info

  • Tomas Otahal

    ()
    (Department of Economics, Faculty of Business and Economics, Mendel University in Brno)

Abstract

What were the purposes for establishment of central banks? Central banks are historically relatively young organizations. Their main purposes are to regulate money supply through interest rates, regulate the banking sector and act as a lender of last resort to banking sector during the time of financial crises. Historical evidence suggests that in the second half of 19th century in the USA private clearing houses were able to provide the banking sector with similar services. In this paper, we follow such evidence and provide Public Choice explanation for establishment of central banks. On the historical example of establishment of the Federal Reserve System we show that the motivation for establishment of the Federal Reserve System might be rather political instead of economic. More precisely, we argue that the Federal Reserve System was established to allow the American Federal Government to control rent- distribution through money supply control and banking sector regulation.

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File URL: ftp://ftp.mendelu.cz/RePEc/men/wpaper/08_2011.pdf
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Bibliographic Info

Paper provided by Mendel University in Brno, Faculty of Business and Economics in its series MENDELU Working Papers in Business and Economics with number 2011-08.

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Length: 19
Date of creation: Apr 2011
Date of revision:
Handle: RePEc:men:wpaper:08_2011

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Related research

Keywords: Federal Reserve System; financial markets institutions; historical example; rent-seeking;

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  1. Selgin, G.A. & White, L.H., 1993. "How Would the Invisible Hand Handle Money?," Papers 380e, Georgia - College of Business Administration, Department of Economics.
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Cited by:
  1. Tomas Otahal & Vaclav Rybacek, 2011. "Can Tight and Centralized Financial Regulation Prevent Financial Crises? Czech Government Bond Seignorage in the Historical Perspective," MENDELU Working Papers in Business and Economics 2011-14, Mendel University in Brno, Faculty of Business and Economics.

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