Free Banking, the Real-Balance Effect, and Walras´ Law
AbstractThe author of this article draws special attention to two particular claims of the free bankers concerning the supposed working characteristics of a fractional-reserve free banking system which may strike the reader as questionable. The first of these relates to the alleged absence of a real-balance effect under free banking. The second relates to the free bankers´ reference to Walras´ Law as providing a rationale for the free banking system´s “offsetting” actions when confronted with changes in the public´ s demand to hold bank liabilities. This rationale is defective since it is based on an erroneous interpretation of Walras´ Law. The author´s conclusion does not imply that it is not at all possible, from a rational viewpoint, to make a plausible case for this variant of free banking, only that the argument should be freed from certain questionable tenets.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 17294.
Date of creation: 17 Sep 2008
Date of revision:
E0; E32; E42; E5; E51; E52;
Other versions of this item:
- van den Hauwe, Ludwig, 2008. "Free Banking, the Real-Balance Effect, and Walras´ Law," MPRA Paper 8765, University Library of Munich, Germany.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- E00 - Macroeconomics and Monetary Economics - - General - - - General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mill, John Stuart, 1874. "Essays on Some Unsettled Questions of Political Economy," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, edition 2, number mill1874.
- Goulven Rubin, 2005. "La controverse entre Clower et Patinkin au sujet de la validité de la loi de Walras," Revue économique, Presses de Sciences-Po, vol. 56(1), pages 5-24.
- Laidler, D., 1988.
"Taking Money Seriously,"
UWO Department of Economics Working Papers
8804, University of Western Ontario, Department of Economics.
- van den Hauwe, Ludwig, 2006. "The Uneasy Case for Fractional-Reserve Free Banking," MPRA Paper 120, University Library of Munich, Germany.
- Say, Jean-Baptiste, 1880. "A Treatise on Political Economy; or the Production, Distribution, and Consumption of Wealth," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, edition 4, number say1880.
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