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Unanswered Quibbles with Fractional Reserve Free Banking

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  • Bagus, Philipp
  • Howden, David

Abstract

We reassess monetary equilibrium theory by focusing on its foundation – price stickiness – and answer several ancillary questions. Prices are sticky at times. Contra monetary equilibrium theorists, this is not a reason to advocate an issuance of fiduciary media to counteract the effects of a sluggish price adjustment process. Issuances of fiduciary media will breed negative effects, primarily via wealth redistributions, faulty interest rate signals and exacerbated business cycles. Allowing the price level to adjust to maintain monetary equilibrium provides for fewer detrimental effects than adjusting the supply of credit.

Suggested Citation

  • Bagus, Philipp & Howden, David, 2011. "Unanswered Quibbles with Fractional Reserve Free Banking," MPRA Paper 79594, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:79594
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    Cited by:

    1. Philipp Bagus & David Howden, 2012. "Monetary equilibrium and price stickiness: A rejoinder," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 25(3), pages 271-277, September.
    2. Philipp Bagus & David Howden, 2012. "Still unanswered quibbles with fractional reserve free banking," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 25(2), pages 159-171, June.
    3. Philipp Bagus & David Howden, 2016. "The economic and legal significance of “full” deposit availability," European Journal of Law and Economics, Springer, vol. 41(1), pages 243-254, February.
    4. Philipp Bagus & David Howden & Amadeus Gabriel, 2015. "Oil and Water Do Not Mix, or: Aliud Est Credere, Aliud Deponere," Journal of Business Ethics, Springer, vol. 128(1), pages 197-206, April.
    5. Philipp Bagus & David Howden & Amadeus Gabriel, 2014. "Causes and Consequences of Inflation," Post-Print hal-02634016, HAL.
    6. APATACHIOAE, Adina, 2014. "Free Banking – Possible Solution To The Recent Crisis?," Journal of Financial and Monetary Economics, Centre of Financial and Monetary Research "Victor Slavescu", vol. 1(1), pages 66-72.

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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